Construction contracts generally require subcontractors to extend additional insured status on the subcontractor’s policies for the benefit of the contractor who relies on this coverage to protect it from claims arising out of the subcontractor’s work on the project. The intent is to place the risk of loss for the subcontractor’s work on the subcontractor’s liability policies. In order to assure that the subcontractor has complied with these contract requirements, contractors generally require the subcontractor to provide a certificate of insurance. However, even though a subcontractor has technically provided the required insurance, the insurance may not meet the expectations of the contractor that the risks to the contractor associated with the subcontractor’s work be covered under the subcontractor’s policy.

One such circumstance occurred to a general contractor in Illinois, who required a subcontractor to name it as an additional insured on the subcontractor’s general liability policy. Vivify Constr., LLC v. Nautilus Ins. Co., 2017 Ill.App.(1st) (2018). The subcontractor complied and had the contractor added to its policy as an additional insured. However, the subcontractor’s policy also contained an endorsement which effectively narrowed coverage under the policy. While liability policies contain employee exclusions which remove from coverage claims made by employees of the insured seeking coverage, this endorsement broadened the exclusion to remove from coverage claims made by any employee of any insured, whether the employer was the party seeking coverage or not.

An employee of the subcontractor was injured on the job and filed a lawsuit against the contractor. The contractor sought coverage for the claim under the subcontractor’s policy as an additional insured. The subcontractor’s carrier denied coverage relying on the broadened employee exclusion. This denial was upheld.

Another circumstance occurred in connection with the construction of a house. D.R. Horton Ltd. v. Markel Int’l Ins. Co., 300 S.W.3d 740 (Tex. 2009). The homebuilder required the foundation subcontractor to include the homebuilder as an additional insured under its liability policy. The subcontractor obtained the required endorsements, but they limited additional insured coverage to losses arising out of the negligence of the subcontractor. When the homebuilder was sued by the homeowners for defects in the foundation of the house, the homebuilder sought coverage under the foundation subcontractor’s general liability policy as an additional insured. Since the pleading filed against the homebuilder did not include any allegations against the subcontractor, the court determined that the additional insured endorsement was not triggered and that the insurance company did not owe the homebuilder a defense to the lawsuit.

The lessons to be learned are first to specify what types of coverage subcontractors are required to carry, to specify any limitations on coverage that are not acceptable, and to specify the exact additional insured endorsements the subcontractors are required to obtain. If possible, it is recommended that the subcontractor’s policies be reviewed in advance to determine whether there are any limitations on coverage which would inhibit the intended transfer of the risk of loss for the subcontractor’s operations to the subcontractor’s insurance coverage. If a review of the policies is not possible, it is recommended that the subcontractor be required to produce a copy of any endorsements to the policy.