Don’t Forget the Additional Insured!

Imagine you are a general contractor who has just been served with a lawsuit for defective construction. You immediately pull your contracts for the project to determine which subcontractors performed the deficient work. You identify the subcontractor, pull the subcontractor agreement, and find that wonderful provision stating that the subcontractor must add you as an additional insured to their commercial general liability policy prior to starting the project. You breathe a sigh of relief. You’re protected. But the bliss does not last long. The subcontractor’s insurance carrier denies coverage because the subcontractor never followed through with adding you as an additional insured. Questions swirl in your mind as this reality sets in. Who is at fault? Will there ever be coverage? What should I do in the future?

            Unfortunately, this is an all-too-common situation in construction litigation. Either the subcontractor wholly forgets to add the general contractor as an additional insured, or both parties mistakenly believe that the certificate of insurance naming the general contractor as a certificate holder is sufficient enough. The result is confusion, frustration, and lengthy litigation. Don’t let this be you.

Who is at fault?

            Texas courts have consistently held that the responsibility for failing to name a party as an additional insured lies squarely at the feet of the party that was contractually required to do so. Clear Serve v. Kroger Co., NO. 01-95-01372-CV, 1996 Tex. App. LEXIS 3721 (Tex. App.—Houston [1st Dist.] Aug. 22, 1996, writ denied). In other words, if a subcontractor fails to comply add the general contractor as an additional insured as required by contract, the subcontractor itself is ultimately liable for breach of contract.

Will there ever be coverage?

            The short answer: NO. Even if the general contractor relied upon the subcontractor’s promises or assurances that it added the general contractor as an additional insured, there will still be no coverage. Furthermore, even if the subcontractor provided the general contractor with a certificate of insurance naming the general contractor as a certificate holder, this will still not be sufficient enough to provide additional insured coverage. TIG Ins. Co. v. James, 184 F. Supp. 2d 591 (S.D. Tex. 2001). Coverage is provided solely by the terms of the subcontractor’s insurance policy. If there is no endorsement to the policy adding the general contractor as an additional insured, then there is simply no coverage for the general contractor.

What should I do in the future?

            If you are a general contractor, you should always require your subcontractor to provide you with the endorsement to the policy that actually names you as an additional insured before allowing the subcontractor to start the project. This may delay the project, but it will ultimately provide you with the legal protection you need. The best practice is to request a copy of the subcontractor’s entire policy and forward it to an insurance attorney for review and further guidance. Even if you are named as an additional insured, there may be other exclusions in the policy which precludes coverage for certain injuries or defects.

            If you are a subcontractor, read your contract! If there is a provision requiring you to name the general contractor as an additional insured, you must comply with this provision. A failure to do so could expose your business and assets to financial liability. As a best practice, you should forward a copy of your policy, along with the additional insured endorsement, to an insurance attorney for review and further guidance.

            Whether you are a general contractor or subcontractor, the bottom-line is don’t leave yourself or your business exposed. A lawsuit can be costly, frustrating, and time-consuming. Ensuring you are in compliance with an additional insured provision can provide security in difficult times.
If you need legal counsel or representation in a matter involving an additional insured issue, please contact our office:
Phone: (281)-296-6500
Email: frontdesk@houstontriallaw.com
25025 I-45 North, 77380
Suite 550