One of the most notable aspects of the 2013 Insurance Services Office, Inc. (ISO), changes concerns revisions to the additional insured endorsements. This article provides a history of the changes to these endorsements and places the most recent changes into this historical context.
The April 2013 ISO changes to the occurrence (CG 00 01) and claims-made (CG 00 02) commercial general liability (CGL) insurance forms have generated a host of comments and critiques. Many of the major changes concern liquor liability, which obviously falls outside the interest of most construction-risk personnel. This is not to say that these changes should be ignored, but the changes do not have significant impact on the construction industry. There are a few changes that directly impact the construction industry, and the biggest impact occurs in the additional insured endorsements.1
These changes have not occurred in a vacuum; nor are these changes the first to the additional insured endorsements. Thus, it is important to understand the history of the additional insured endorsement and the changes that have occurred in the context of ISO's previous changes to these forms.
As a reminder, additional insured provisions grant direct access to the additional insured on the named insured's policy.2 In the owner/contractor context, this means that the owner can look to the contractor's CGL policy for a defense of a claim that potentially could be covered by the policy. Section 11 of the American Institute of Architects A201 agreement states that contractors must include the owner, architect, and others as additional insureds, but it leaves the coverage and requirements vague as to how the endorsements will apply or what endorsement the contractor needs to obtain.
History of the Additional Insured Endorsement
The CG 20 10 endorsement is perhaps the most widely used additional insured endorsement, and its history is consistent with the history of the other additional insured endorsements.
The 1985 CG 20 10 additional insured endorsement was the first additional insured endorsement to the overhauled CGL policy. The 1985 endorsement provided as follows:
WHO IS AN INSURED (Section II) is amended to include as an insured the person or organization shown in the Schedule, but only with respect to liability arising out of "your work" for that insured by or for you.
The original additional insured endorsement did not have many limitations. Rather, the endorsement stipulated simply that the liability must arise out of the named insured's work. The endorsement did not make any distinction between ongoing operations and completed operations. But in 1993, ISO began making this distinction. ISO revised the CG 20 10 endorsement in 1993 to exclude completed operations coverage. Insurers sought this change to reduce exposure to lawsuits filed long after construction projects ended. The 1993 endorsement stated:
WHO IS AN INSURED (Section II) is amended to include as an insured the person or organization shown in the Schedule, but only with respect to liability arising out of your ongoing operations performed for that insured.
The "arising out of your ongoing operations" language proved somewhat ambiguous. Insurers and insureds debated the meaning of "ongoing operations," which was not defined in the CGL policy. They also disputed whether the 1993 endorsement was specifically intended to remove completed operations coverage.3
ISO addressed these ambiguities in the 2001 revisions to the additional insured endorsements. The endorsement did not change the language in the 1993 endorsement, but it added exclusions to the 20 10 endorsement. The endorsement specifically excluded bodily injury and property damage occurring after "(1) All work, including materials, parts or equipment furnished in connection with such work, on the project (other than service, maintenance or repairs) to be performed by or on behalf of the additional insured(s) at the site of the coverage operations has been completed; or (2) That portion of 'your work' out of which the injury or damage arises has been put to its intended use by any person or organization other than another contractor or subcontractor engaged in performing operations for a principal as a part of the same project."
These 2001 revisions also brought a new additional insured endorsement (CG 20 37), which restored the completed operations coverage for the additional insured that was deleted by the 2001 amendments.
The 2004 revisions created the greatest change. The 2004 revisions deleted the favorable (from the insured's perspective) "arising out of" language from the policy and inserted in its place the phrase "caused in whole or in part" by the acts or omissions of the named insured or those acting on the named insured's behalf at designated locations. The 2004 endorsements also contained the same exclusions for completed operations contained in the 2001 endorsements.
The main purpose of the 2004 endorsements was to avoid providing coverage for losses that arose out of the operations that were caused solely by the additional insured's acts or omissions. The 2004 endorsements demonstrate that coverage is only provided to the extent that the named insured had a hand in the liability.
The 2013 Revisions
The 2013 revisions maintain the same language used in the 2004 endorsements, with the exception of two important caveats. The 2013 endorsements begin with a broad "HOWEVER," narrowing coverage such that insurance afforded to an additional insured (1) only applies as permitted by law, and (2) if such coverage is required by contract, the coverage afforded "will not be broader than that which you are required by the contract or agreement to provide for such additional insured."
The endorsement also contains an additional restriction on the limits of insurance such that if coverage for the additional insured is required by contract, such insurance is limited to the lesser of the amount (1) required by contract or agreement or (2) available under the limits of insurance listed in the declarations.
The first change (limiting the coverage to the maximum extent permitted by law) does not reduce coverage. A court would not enforce an endorsement that violates a statute, so, in many ways, this clause is a clarifying statement. The second and third changes, however, do reduce the scope of coverage for additional insureds.
To the Extent Permitted by Law
For many years, the construction industry has been able to avoid some of the effects of anti-indemnification statutes that prohibited the transfer of indemnitees' concurrent negligence through contractual indemnity provisions. The construction industry did so by using the additional insured requirements to insure against losses that could potentially violate states' anti-indemnification statutes.
But states have begun prohibiting construction entities from obtaining additional insured status for risks prohibited by the state's anti-indemnification statutes. For example, California, Colorado, Kansas, Montana, New Mexico, Oregon, and Texas all prohibit additional insureds from receiving greater coverage than they would be able to obtain by indemnification. The new 20 10 endorsement seeks to address these states.
Over the past several years, new breeds of endorsements have arisen in these states. Though there are some differences, the state-specific additional insured endorsements appeared generally as follows:
SECTION II - Who is An Insured is amended to include as an additional insured the person(s) or organization(s) shown in the Schedule, but only with respect to liability for "bodily injury", "property damage" or "personal advertising injury" caused by your ongoing operations for the additional insured(s) at the location(s) designated above and only to the extent that such "bodily injury", "property damage" or "personal and advertising injury" is caused by your acts or omissions or the acts or omissions of those performing operations on your behalf.4
It is not clear whether these state-specific endorsements will remain or whether the endorsements will be deleted in light of the 2013 changes.
To the Extent Sought under the Parties' Contract
This clause in the endorsement ensures that insurers do not provide greater coverage than required by the contract. For example, if the contract states that the named insured only provides coverage to an additional insured for the named insured's vicarious liability, then the CG 20 10 endorsement only provides coverage for the named insured's vicarious liability, even though the policy would ordinarily provide broader coverage.
Thus, it is essential for contracting parties to dictate the terms of the coverage in the construction documents.
Coverage Limit Is Restricted to That Required by Contract
This clause essentially means that insurers can deny the additional insured coverage even when the named insured has broader coverage. For example, if the contract documents require the contractor to maintain CGL limits of $1 million per occurrence, but the contractor obtains coverage for $2 million per occurrence, the owner would only receive the benefit of the $1 million in coverage.
Additional gaps in coverage could also occur when excess policies are implicated. In the above example, any excess coverage could generate coverage gaps of $1 million in the coverage band between $1 million and $2 million.
The 2013 additional insured changes fit in context with previous ISO changes to the additional insured endorsements. The most recent round of changes clarifies three key points:
(1) coverage will not exceed that permitted by law;
(2) coverage is restricted to the amount required by contract; and
(3) coverage is limited to that which is required by contract.
Because of the emphasis on the contract documents, it is imperative to ensure that the parties clearly state the coverage they intend to provide on the front end and clearly define the coverage limits.
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