Pitfalls of Additional Insured Endorsements

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Additional insured endorsements aren't always what they seem. Many contain exclusions or limitations that aren't apparent until a loss occurs. This article describes some pitfalls to watch out for if you are covered, or are covering someone else, under a liability policy as an additional insured. Other common limitations are outlined in Part Two of this discussion.

Standard Versus Non-Standard

Many insurers utilize additional insured endorsements published by the Insurance Services Office (ISO).

These endorsements are called standard additional insured endorsements. Some insurers have developed their own additional insured endorsements. These are called non-standard endorsements.

Insurers may create non-standard endorsements "from scratch" by drafting their own wording. Alternatively, they may "borrow" wording from ISO. Many insurers create proprietary endorsements by altering an existing ISO endorsement. Thus, many non-standard endorsements are similar, but not identical, to their standard counterparts. When an insurer has used some ISO wording in a proprietary endorsement, the endorsement will state that it includes copyrighted materials of ISO. 

Ongoing Operations

One of the most commonly-used additional insured endorsements is designed for contractors. It is used when a contractor is performing work on behalf of someone else, such as a general contractor or project owner. The endorsement covers the hiring party (general contractor or project owner) as an additional insured.

The contractor endorsement contains a key limitation. It restricts coverage to acts or omissions committed by the contractor while he or she is performing ongoing operations. The endorsement excludes bodily injury or property damage that occurs after the contractor's work on the project has been completed.

The following example demonstrates how the limitation applies.

Elite Electric has been hired by Prime Properties to install new electrical wiring in an apartment building Prime owns. Prime is covered by an additional insured endorsement attached to Elite's general liability policy. The endorsement covers Prime only for claims that stem from Elite's ongoing work on the project.

One month after the work is completed a fire breaks out in the apartment complex. The fire is attributed to Elite's shoddy work. A tenant is injured and sues Prime Properties. If Prime seeks coverage for the claim as an additional insured under Elite's liability policy, the claim will not be covered. The tenant's injury occurred after Elite's work on the project was completed.

Claims against an additional insured that stem from a contractor's completed work may be covered under a separate additional insured endorsement. This endorsement covers bodily injury or property damage caused, in whole or in part, by the contractor's completed work.

Sole Negligence Exclusion

Some additional insured endorsements include a so-called sole negligence exclusion. This exclusion eliminates coverage for claims or suits that result from negligence committed solely by the additional insured.

No coverage is provided if the named insured (policyholder) did not contribute to the loss in any way. The sole negligence exclusion is based on the idea that an additional insured who is completely responsible for a loss should rely on his or her own liability policy for coverage.

The sole negligence exclusion is often found in additional insured endorsements used to insure:

  • Project Owners and Contractors This is the contractor endorsement described above
  • Vendors
  • Architects, Engineers and Surveyors

Some endorsements don't use the words "sole negligence." Rather, they limit coverage to injury or damage caused, wholly or partly, by acts or omissions of the named insured (policyholder). This means that if the named insured did not contribute to an accident that results in a claim against the  additional insured, the claim is not covered.

In the Elite Electric scenario described above, suppose that the additional endorsement covering Prime Properties contains a sole negligence exclusion. While working at the apartment building, an Elite employee is injured when an acoustic ceiling tile falls on him. The employee collects benefits from Elite's workers compensation insurer and then sues Prime Properties for negligence. His suit claims that Prime is responsible for his injury because it knew the ceiling tile was defective and failed to warn him. Prime sends the claim to Elite's insurer. The insurer denies coverage because the accident resulted from negligence committed solely by Prime Properties. No fault was attributed to Elite Electric.