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You May Think You Are Insured as an Additional Insured But You May Find You Are Not Covered

Anyone who hires someone to do construction should ask the contractor to name them as an additional insured on the contractor's policy. The contractor may agree to provide the coverage but then may fail to follow the rules in the policy for providing additional insured coverage. You may not learn about the mistake until you are sued and find you are not covered.

At the outset, it is important never to rely on a certificate of coverage on the "ACORD" form, which is generally supplied by a contractor as "proof" of coverage. It is not proof of coverage that does not provide proof of coverage. Indeed, the ACORD form has warning, in capital letters, advising that it is not proof of coverage:

THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AFFIRMATIVELY OR NEGATIVELY AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW. THIS CERTIFICATE OF INSURANCE DOES NOT CONSTITUTE A CONTRACT BETWEEN THE ISSUING INSURER(S), AUTHORIZED REPRESENTATIVE OR PRODUCER, AND THE CERTIFICATE HOLDER.

There are basically three ways that a party becomes an additional insured under a policy.

The simplest way is for the policyholder to ask the carrier to designate a person as an additional insured. General Liability ('GL") policies commonly include, in the definition of "Who Is An Insured," the following:

Anyone designated in the declarations is an insured.

In that instance the person is not actually an additional insured but a "named" insured who has the same contractual rights as the policyholder.

GL policies also include other people who one would imagine should be covered as insureds. The policy standardly includes the following wording:

To be an additional insured, if you are not included in the definition of "Who Is An Insured" or named as an insured in the declarations, you must have a provision that amends the provision for "Who Is An Insured." Here, there are basically two types of coverage.

One form of coverage provides that an insured is any person... "to whom you are obligated by virtue of written contract or agreement or by virtue of the issuance or existence of a permit, to provide insurance such as is afforded by this policy."

Another more complex provision is known as a Blanket Additional Insured provision required "by virtue of a written contract" or "the issuance of a permit." The two basic provisions are quoted below.

The "Short Form" provision states:

WHO IS AN INSURED (SECTION II) is amended to include as an insured any person, organization, trustee, estate or governmental entity to whom or to which you are obligated, by virtue of a written contract or agreement or by virtue of the issuance or existence of a permit, to provide insurance such as is afforded by this policy.

The "Long Form" of a "Blanket Addition Insured" provision states:

2.) BLANKET ADDITIONAL INSUREDS-REQUIRED BY CONTRACT OR ISSUANCE OF A PERMIT

(A) WHO IS AN INSURED (Section II) is amended to include as an insured any person, organization, trustee, estate or governmental entity to whom or to which you are obligated, by virtue of a written contract or agreement or by virtue of the issuance or existence of a permit, to provide insurance such as is afforded by this policy, but only with respect to liability arising out of:

1. "Your work" for the additional insured(s) or for which a governmental entity has issued a permit, or

2. Acts or omissions of the additional insured(s) in connection with their general supervision of "your work";

then only for the limits of liability specified in such contract or agreement, but in no event for limits of liability in excess of the applicable limits of liability of this policy provided that

1. such person, organization, trustee, estate or governmental entity shall be an insured only with respect to occurrences taking place after such written contract or agreement has been executed or such permit has been issued, and

2. a) the name of such person, organization, trustee, estate or governmental entity has been furnished to the company as of the effective date of the policy, or

b) (i) such contract or agreement takes effect or such permit is issued during the policy period, and

(ii) the named insured notifies us, within 180 days after the effective date of the contract or agreement or the issuance date of the permit, of the date as of which such person organization, trustee, estate or governmental entity shall be included as an insured.

Here is where it gets tricky. In the Short Form there is only the requirement that there be a "written contract or agreement" or "the issuance or existence of a permit." An oral agreement will not be enough. Similarly, if a permit does not exist there will be no coverage.

These same two provisions - a written contract or a permit - are included in the Long Form. But there are many other requirements.

The Long Form applies only for "your work" for the additional insured or for which a government entity has issued a permit or acts or omissions of the additional insureds in connection with their general supervision of "your work."

The Long Form also provides an additional requirement that the person is insured "only with respect to occurrences taking place after such written contract or agreement has been executed or such permit has been issued."

Finally, the Long Form requires the named insured to notify the carrier within one hundred and eighty (180) days of the effective date of the contract of the agreement or the permit. Thus, all of these requirements must be met.

The Short Form is the easiest to comply with. The Long Form has many requirements and is a trap for the unwary. If there is no written contract or permit, the provision is limited to liability arising out of your work or acts or omissions of the additional insured in connection with their general supervision of your work, the occurrence has to take place after the written agreement or permit has been issued and notice has to be given to the carrier within the first one hundred and eighty (180) days.

The caselaw is legion with instances where all of these requirements were not met. The bottom line is you can't rely on the ACORD certificate of insurance and you must ask the contractor to let you look at the policy itself. You should have a written contract and you should make sure that the policyholder does everything it has to do. If you have the Long Form you can be sure that you won't have any coverage if it doesn't arise out for your work of the additional insureds or in connection with their general supervision of "your work." These pitfalls require someone who needs additional insured coverage to make sure that they are either named on the policy or that all the rules of the additional insured provision have been followed.

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