There's an old joke that applies to our business: “If you fall off a 40-story building, 35 stories down everything's fine!” Those of us who spend our lives protecting others from risk know the truth behind the absurdity, but too often take things at face value instead of closely examining before we reach 40 stories down. The concept of being an additional insured (AI) is a prime example.

One of the most common situations many agents encounter involves the landlord-tenant relationship. A request to add a landlord as an AI on a tenant's liability policy (a provision in msot leases) is met with the issuance of an endorsement: the latest edition of CG 20 11, “Additional Insured–Managers or Lessors of Premises.” A certificate of insurance is then provided to the landlord as evidence of coverage.

If your client is the landlord, how secure is he? To what extent can he rely on this coverage assuming he has no other? A previous article in this magazine, “Getting a Leash on Leases” (AA&B August 2008) outlines a few of the problems:

o No coverage once the lessee is no longer a tenant

o No coverage for claims arising out of building alterations

o Gray areas of coverage (parking lots, outside walks, common bathrooms)

o No hired/non-owned auto coverage

o Duty to defend a claim (usually broader than the duty to indemnify) may not apply to the same extent as it does to the named insured (tenant)

o No coverage for personal/advertising injury

o Policy exclusions may apply because the landlord has, to a great extent, no greater rights than the named insured tenant

o Aggregate limits issues

o Multiple tenancies.

But landlord-tenant relationships are not the only ones with which agents are concerned. Equally common are those involved in construction or alterations: owner/general contractor; general contractor/subcontractor; and even subcontractor/sub-subcontractor.

The first question is whether or not coverage for the AI will apply only while the job is ongoing, or whether it will extend beyond completion of the job, providing products/completed operations coverage to the AI. This is particularly important in the case of construction operations because claims can occur well after job completion.

ISO offers several endorsements applicable to contractors dealing with AIs:

1 CG 20 10, “Additional Insured –Owners, Lessees Or Contractors– Scheduled Person Or Organization”

This form requires a listing of the AI and states:

This insurance does not apply to “bodily injury” or “property damage” occurring after all work, including materials, parts or equipment furnished in connection with such work, on the project (other than service, maintenance or repairs) to be performed by or on behalf of the additional insured(s) at the location of the covered operations has been completed.

In other words, once the job has been essentially completed, coverage for the AI ceases.

2 CG 20 33, “Additional Insured –Owners, Lessees Or Contractors–Automatic Status When Required In Construction Agreement With You”

As its name suggests, this does not require a specific listing of the AI. Coverage is afforded to:

…any person or organization for whom you are performing operations when you and such person or organization have agreed in writing in a contract or agreement that such person or organization be added as an additional insured on your policy.

But it contains the same wording as CG 20 10, excluding coverage for the AI once the work has been completed. Only “ongoing operations” are included.

3 CG 20 37, “Additional Insured –Owners, Lessees Or Contractors–Completed Operations”

This is the only form that provides coverage for the AI for completed operations, and many carriers only provide it reluctantly. It amends the policy's definition of who is an insured to include as an AI:

…the person(s) or organization(s) shown in the schedule, but only with respect to liability for “bodily injury” or “property damage” caused, in whole or in part, by “your work” at the location designated and described in the schedule of this endorsement performed for that additional insured and included in the “products-completed operations hazard.”

It requires the specific listing of the AI as well as designating the location and description of completed operations. Remember: If your client is added as the AI on a contractor's or subcontractor's policy, the possibility of the coverage exists when the claim occurs depends if the contractor is still in business and still maintains the coverage.

Because the form only provides products/completed operations, the policy also should contain either CG 20 10 or CG 20 33.

Beyond these ISO forms, there are others produced by individual insurance carriers. One carrier produces an endorsement “Blanket Additional Insured (Contractors),” which states that “who is an insured” includes any organization or person that you agree in a written contract requiring insurance to include as an additional insured. Before advising your client that it's OK to rely on such an endorsement, watch out for any “fences” around the coverage grant such as:

o Coverage only applies in the course of “your work,” not independent acts or omissions of the AI

o Completed operations is not included unless the written contract requires it and only for the period of time stated in the contract.

One of the other issues receiving more and more attention is how the coverage provided to the AI interacts with other insurance that the AI may carry independently. “Other insurance” clauses are standard fare on ISO forms, but many problems over the years have resulted in changes in those forms. The issue is a bit complex, but originally, if the named insured's policy (A) was considered to be primary and the other insurance (B) was excess, then A's policy applied first. But if both policies were primary, then the loss was to be apportioned equally unless B's policy didn't permit equal apportionment; in that case, the loss was apportioned by contribution by limits.

More recently (1998), wording made A's own policy excess over another policy on which A was included as an additional insured. This was in accordance with many leases that were increasingly requiring the insurance policy to which a party was being added as an AI to be primary. In 2004, CG 20 37 was amended to operate in the same fashion for both premises/operations and products/completed operations.

The role played by umbrella policies which had their own “other insurance” clauses resulted in many contracts requiring that the insurance of the party being added as an AI should be both primary and non-contributing. Some carriers balk at this or require special endorsements, but others have built it into their form automatically if a contract requires such treatment.

As to non-ISO forms, the blanket additional insured endorsement mentioned above states:

The coverage provided by the endorsement is excess over any valid and collectible other insurance, whether primary, excess, contingent or on any other basis. [But] if the written contract requiring insurance specifically requires that this insurance apply on a primary basis or a primary and non-contributory basis, then this insurance is primary to other insurance available to the additional insured and we will not share with such other insurance.

But the endorsement goes on to say that that applies only if the additional insured is the named insured on such other insurance. If they are an additional insured on other insurance, then this coverage is excess.

Provisions like this may drive you crazy, and you may need to read them numerous times to figure out just what exactly is being said. The point is that non-ISO forms need to be examined to make sure you understand how a client is being protected as an AI.

A final issue to watch out for: If the AI to be added is a partnership, joint venture, or LLC, beware of the final sentence in the “who is an insured” provision in the named insured's CGL policy:

No person or organization is an insured with respect to the conduct of any current or past partnership, joint venture or limited liability company that is not shown as a named insured in the declarations (emphasis added).

While there may be no common sense reason to apply such a provision to a simple AI request, an endorsement modifying this provision is advisable to avoid future claims denials.

The complicating factor is the relative ease with which many agents issue certificates of insurance (COIs) for AIs and the relaxed attitude by insureds receiving them. According to a recent article in a CPCU newsletter, one in 25 E&O claims involves certificates (one in 10, in some states) and 36 percent of those claims involve additional insured status.

If your client is relying upon a COI for coverage, it is incumbent upon you, as a trusted advisor, to make sure they understand the limitations that may be lurking behind that certificate:

o Whether their own insurance will be called upon to pay all or part of any claim

o Whether the coverage will apply only during the job or after

o Policy exclusions that might be relevant to the additional insured

o The limitations mentioned at the beginning of this article

o Whether the COI truly reflects coverage provided by the policy. Some additional insureds insist upon a copy of the endorsement itself (or a copy of the form providing blanket additional insured coverage). Almost all cases have held that the policy governs the coverage, regardless of what the COI states.

Falling off that 40-story building is not exactly fun–but who ever said the intricacies of the insurance business were fun? Just be sure you're exercising your professional review when it comes to additional insureds so the feeling that everything's fine 35 stories down stays that way.