Are you a business owner who is considering a physical expansion which may involve a construction project? If so, you will likely enter into a contract with the General Contractor (GC) or Construction Manager (CM) which you may believe provides you certain protections from potential personal injury claims from workers hurt on the project. You should be warned, however, that you may not have the protection you think you do. Below are some hazards you should be aware of when signing such a contract.
Very often the contract you enter into will contain a provision requiring the GC or CM to maintain certain insurance, including Commercial General Liability (CGL) coverage which names you, as the owner, as an additional insured on the CGL policy. These provisions are crucial because, in theory, such a requirement should ensure that you, as the business owner, would be covered under the GC or CM’s CGL policy and not your own in the event a worker is injured on the project. Such coverage usually includes a right to a defense and, when applicable, indemnification coverage under the GC or CM’s CGL policy.
You should ensure, however, that you are actually named as an additional insured on the CGL policy by insisting that the GC or CM provide you with a copy of the actual additional insured endorsement on the policy [which evidences that you are, in fact, named as an additional insured] rather than simply accepting a Certificate of Insurance. Very often contracts for construction only require the GC or CM to provide the owner with a Certificate of Insurance but a Certificate of Insurance is not actual verification you are an additional insured on the CGL policy.
In fact, Certificates of Insurance forms, which are often issued by an insurance broker and not by the insurance company itself, usually contain disclaimers that they are for informational purposes only that they do not confer any rights to you despite the fact that you are listed as an additional insured on the form. Therefore, being provided with a Certificate of Insurance which names your business as an additional insured does not necessarily guarantee that your business has you have, in fact, been named as an additional insured on the CGL policy.
In order to protect yourself, the best practice is to require that you be provided with a copy of the actual additional insured endorsement issued by the CGL insurer itself. By doing so, you know that you are, in fact, named as an additional insured on the policy. You can also ensure that the limits of insurance the GC or CM was required by contract to purchase was, in fact, purchased.
In addition to the foregoing, you should consider adding language to your contract in relation to insurance requirements which protects you from other potential pitfalls. By way of example, with changing economic concerns and increases in insurance costs, many companies opt for higher deductibles on insurance policies, including CGL policies. You may want to consider adding a provision to the contract which obligates the GC or CM to provide a defense to your company directly until any deductible amount is met. By adding this provision, you ensure that the GC or GM has an obligation in the event of a lawsuit to provide you with a defense regardless of whether the CGL policy it purchased contains a deductible.
You should also consider that the insurance provision require that the GC or CM’s CGL additional insurance coverage be primary over any CGL coverage you may have. This may avoid litigation which can arise regarding whose insurance is primary and may result in the GC or CM’s CGL insurer providing you with a defense earlier on in the litigation.