Navigating the Complexities of Additional Insured Status and Excess Coverage
John Hubbard
Property & Casualty Producer that helps employers reduce their insurance costs I Reduce their WC injury rates I Avoid the loss of $1.4M in sales/profits for the average disabling WC injury. ?? CRIS Certified.
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?? As a business owner, understanding when your Commercial General Liability (CGL) policy acts as excess coverage is crucial, especially when you have additional insured status under another party's primary policy.
?? Ensure proper coverage by checking your policy's "other insurance" provision and requiring "primary and noncontributory" additional insured coverage in contracts.
?? Use real-life examples to visualize how these nuances play out in construction projects involving multiple parties and insurance policies.
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As a business owner, navigating the intricacies of insurance coverage can be a daunting task. One area that often raises questions is when your Commercial General Liability (CGL) policy acts as excess coverage, particularly when you have additional insured status under another party's primary policy.
In situations like construction projects, where multiple parties and insurance policies are involved, it's essential to understand the nuances of additional insured status and excess coverage.
?Let's break it down with a real-life example.
Imagine a construction project with a property owner, a general contractor, and various subcontractors.
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The property owner's contract with the general contractor likely requires the general contractor to add the property owner as an additional insured on the general contractor's CGL policy.
Similarly, the general contractor's contracts with subcontractors may require the subcontractors to add the general contractor and property owner as additional insureds on their CGL policies.
Now, let's say a subcontractor's employee is injured on the job site due to the negligence of another subcontractor. The injured employee files a lawsuit against both the general contractor and the property owner. In this case, the subcontractor's CGL policy, on which the general contractor and property owner are additional insureds, would respond as the primary policy to defend and indemnify them against the lawsuit.
This is because the contract likely stipulated that the additional insured coverage must be "primary and noncontributory." This means that the subcontractor's policy will respond on a primary basis without requiring the general contractor's or property owner's own CGL policies to contribute to the payment of claims.
The general contractor's and property owner's own CGL policies would act as excess coverage, only coming into play if the subcontractor's policy limits are exhausted.
To ensure proper coverage as an additional insured, it's crucial to take proactive steps:
Check the wording of your CGL policy's "other insurance" provision. If it doesn't clarify the order of payment when you are an additional insured, request a modification from your insurer. This change should not face resistance as it reduces the insurer's exposure.
Require in contracts that the additional insured coverage will be "primary and noncontributory." Insurers offer endorsements like the ISO CG 20 01 to evidence compliance with this requirement.
By understanding these nuances and taking proactive steps, you can navigate the complexities of additional insured status and excess coverage, ensuring that your CGL policy functions as intended and avoiding potential coverage gaps or disputes.
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