Additional insureds are typically required on Commercial General Liability (CGL) policies of prime contractors and subcontractors. An owner may require the prime contractor to name them as an additional insured on their CGL policy. Similarly, a prime contractor may require the roofer to add the prime as an additional insured on the roofer’s CGL policy.
When either of these situations take place, the additional insured (whether it be an owner or the prime contractor) receives two primary benefits. First, the additional insured receives added coverage without having to pay the insurer directly, because only the named insured is required to make payments on the premium; however, the cost of additional insured is usually passed on to the customer. Second, generally, an insurer may not pursue a subrogation claim against any additional insured because an insurer cannot sue its own insured for indemnity (although there are exceptions). In other words, if a customer was partly at fault for a covered loss, the insurer could not pursue the customer if it was named as an additional insured on the roofer’s policy. For additional insured coverage to apply, the policy must state that there is such coverage. Typically, the policy states that it provides coverage under an insured’s policy and it is identified on the Certificate of Insurance (COI).
In Travelers Property Casualty Company of America v. Amerisure Insurance Company, a dispute arose about stucco defects after the completion of a condominium project. 161 F. Supp. 3d 1133 (N.D. Fla. 2015), aff’d 11th Cir (2017). The prime contractor was sued for the defects and requested that the stucco subcontractor tender their defense based on language in the subcontract. In reviewing the policy and the operable contract, the Court found that the subcontract included a provision that made the prime an additional insured. The Court relied on the following language in determining that the subcontractor was required to defend the prime contractor as an additional insured: “. . . including as a minimum the same types of insurance at the same policy limits which are specified by the Prime Contract . . .” Therefore, roofers should read their insurance provisions carefully to determine if the appropriate coverages exist.
Many new construction roofers have faced an onslaught of stucco-related claims from homebuilders. Typically, a plaintiff homeowner sues the builder for damage caused by stucco cracks. The builder then sues the trades including roofers alleging that somehow, they contributed to the stucco cracks. The builder may also claim that because it is identified as an additional insured on a roofer’s policy that it deserves coverage. This demonstrates some of the potential problems with additional insured status especially with questionable claims. A roofer should carefully consider its options when facing these claims given the impact they may have on CGL premiums.
Policies that grant a prime contractor or owner additional insured status create several problems for the named roofer insured. First, on larger projects with multiple additional insureds, the named insureds face the risk of having their policy diluted to such an extent that they are unable to satisfy additional insureds’ claims because the coverage has been exhausted. This creates problems for the named roofer insured because it may not have any coverage for itself.
Second, and building off the first issue, the named insured faces the risk of increased premiums because of the volume of additional insured claims made under the named insured’s policy. This is especially problematic to subcontractors because they do not obtain policies on a project-by-project basis. Multiple additional insured claims will, at a minimum, increase the named insureds premiums, and potentially lead to the roofer’s insurance provider declining to renew policies. Third, the named insured faces the risk of paying a deductible for a claim brought by an additional insured even if the claim is questionable. Finally, the additional insureds have less incentive to be as careful or responsible as they would be if they were not named additional insureds on a roofers’ policy.
Subcontractors need to be careful in negotiating with prime contractors and owners so as not to fall into any of the above-mentioned traps. Instead of automatically granting AI status to your customers, determine if the agreement can be executed without adding them as an additional insured. This will ultimately save you money in increased CGL premiums.
By Trent Cotney & Kyle Gretel
By Trent Cotney & Kyle Gretel
Trenton H. Cotney
Florida Bar Certified Construction Lawyer
Trent Cotney, P.A.
8621 E. Dr. Martin Luther King, Jr. Blvd
Tampa, FL 33610