Additional Insureds April 18, 2012 Steve Coombs, CPCU, ARM Risk Resources SCoombs@riskresources.net

Exploration of Three Areas Primer: Contract Indemnification and Insurance Additional Insured Endorsements/Provisions Takeaways

Contract Language and Insurance Flow of Contract Terms: Indemnification and Insurance Owner Others Design Team GC/CM Trades Lower Tier Trades

Permissible Indemnification (Illinois) 740 ILCS 35 Construction Contract Indemnification for Negligent Act Applies to indemnification provisions: Sec. 1. With respect to contracts or agreements, either public or private, for the construction, alteration, repair or maintenance of a building, structure, highway bridge, viaducts or other work dealing with construction, or for any moving, demolition or excavation connected therewith, every covenant, promise or agreement to indemnify or hold harmless another person from that person’s own negligence is void as against public policy and wholly unenforceable. Does not apply to insurance requirements/policies: Sec. 3. This Act does not apply to construction bonds or insurance contracts or agreements.

Current Insurance Environment for Contractors: Illinois is a “horizontal exhaustion” state (see Kajima Construction Services, Inc. V. St. Paul Fire and Marine Ins. Co., Docket No 103588, Ill. 11-29-07) Illinois doctrine of “targeted tender” does not supersede “horizontal exhaustion” Upstream parties often impose stringent insurance requirements Owner/CM/GC increasingly require higher primary CGL and Auto limits ($2 million) Owner/CM/GC often require Umbrella/Excess liability which “follows form” Required “Additional Insured Endorsements” are often specified by form number; primary/non-contributory requirements are common Builders Risk insurance arrangements/requirements are not always clear

Additional Insureds What Do Additional Insured Endorsements Do? Provide upstream parties with some degree of insurance coverage maintained by downstream parties Why Do Parties Demand Additional Insured Status? Greater protection than hold harmless/indemnification agreements Direct rights under the policy Protects against subrogation What Insurance Policies Allow Additional Insured Status? CGL Auto Umbrella/Excess Pollution Builders Risk

Additional Insureds: Commercial General Liability What Endorsements Are Currently Used? ISO forms (six for construction industry) Non-ISO forms (300+) ISO Construction Related Forms Engineers, Architects or Surveyors (CG 20 07 07 04) Engineers, Architects or Surveyors- Not Engaged by the Named Insured (CG 20 32 07 04) Owners, Lessees or Contractors- Scheduled Person Or Organization (CG 20 10 07 04) Owners, Lessees or Contractors- Completed Operations (CG 20 37 07 04) Designated Person or Organization (CG 20 26 07 04) Owners, Lessees or Contractors- Automatic Status when Required in Construction Agreement With You (CG 20 33 07 04)

Non-ISO Forms Manuscripted by individual insurers May incorporate portions of ISO language Level of protection is wholly dependent on wording contained therein Range of protection: From non-existent to good Most Popular Upstream Requirements Owners, Lessors or Contractors- Scheduled Person Or Organization (CG 20 10 07 04) Owners, Lessors or Contractors- Completed Operations (CG 20 37 07 04) These two endorsements are commonly required because language is largely tested and are readily available.

Owners, Lessees or Contractors CG 20 10 07 04 A scheduled endorsement– Name and location of covered operations Refers to the person or organization as an additional insured Limited to on-going operations for the additional insured Injury or damage “caused in whole or in part” by your acts or omissions or those acting on your behalf Whole = 100% In part: > 0% and < 100%

Owners, Lessees or Contractors–Completed Operations CG 20 37 07 04 A scheduled endorsement– Name and location of completed operations Limited to completed operations for the additional insured Injury or damage “caused in whole or part” by your work Often used in conjunction with CG 20 10

Blanket Additional Insured Endorsements: Use Caution Very common approach today with no scheduling of names Usually tied to “written” or “executed” contracts Breadth of coverage is dependent on the “fine print” May not provide for “in whole or part” May not provide completed operations Often limited to limits or coverages required by contracts

Ideal Blanket Endorsement Additional Insured– Where Required By Contract Who is an Insured is amended to read any person or organization to whom you become obligated to include as an additional insured under this policy, as a result of any contract or agreement you enter into which requires you to furnish insurance to that person or organization of the type provided by this policy, but only with respect to liability arising out of your operations or premises owned by or rented to you.

Recent Chink in the Armor Westfield Insurance Co. v FCL Builders, Inc., 407 Ill. App. 3d 730; 948 N.E.2d 115 (03-08-11) Sub—Subcontractor’s “CGL” policy included an additional insured endorsement: “…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.” Since no direct contract existed between GC and sub- subcontractors additional insured endorsement did not apply to GC It is unlikely that other courts will follow this decision

Additional Insureds: Umbrella and Excess What endorsements are currently used? Manuscript policies (embedded language) Manuscript endorsements What to look for? “Follow form” on persons or organizations “Follow form” on coverage Primary/non-contributory as required by contract

Additional Insureds: Auto Liability What endorsements are currently used? ISO Business Auto Policy (CA 00 01 03 10) “Who Is Insured” includes “anyone liable for the conduct of an ‘insured’ described above (named insured and permissive users) but only to the extent of that liability ISO Designated Insured (CA 20 48 02 99) was developed to respond to multiple requests for a separate endorsement. It does nothing more than repeat what is provided in the base policy Manuscript endorsements

Additional Insureds: Pollution What endorsements are currently used? Manuscript policies (embedded language) Manuscript endorsements What to look for? Copy of policy or endorsement Obtain assistance from agent/broker/advisor

Additional Insureds: Builders Risk What does the construction contract require? Standardized Contracts AIA: “Interests…In the project” Consensus DOCS: “As Named Insureds” EJCDC: “As Loss Payees” DBIA: “As Additional Insureds” What endorsements are currently used? Manuscript policies and endorsements “Named Insured” status is recommended

Takeaways Additional insured provisions/endorsements are not created equal Review and understand contract requirements from upstream parties Require specific endorsements from downstream parties Confirm endorsements comply with the contract requirements

Steven A. Coombs, CPCU, ARM Steve joined Risk Resources as President in 1992 after serving eight years as an officer and a risk management consultant with a national consulting firm. Prior to that he spent seven years developing his skills as a national accounts underwriter for a large international insurance group. Steve brings his special knowledge of underwriting and risk financing techniques to benefit Risk Resources’ clients. He has presented many seminars related to insurance, with special emphasis on construction risk issues. He has authored various articles and is the co-author of The Builders Risk Book (IRMI). Steve is a graduate of Western Michigan University with a Bachelor of Business Administration. He also holds an M.A. from DePaul University with a concentration in risk management and insurance. He has earned the Associate in Risk Management (ARM) certificate from the Insurance Institute of America and received the Chartered Property Casualty Underwriter (CPCU) designation. He is currently a member of the Chartered Property Casualty Underwriters (CPCU) Society and Society of Risk Management Consultants (SRMC). He is a former President of SRMC.