It is very helpful to be an additional insured on your subcontractor’s insurance policy, but additional insured status is not a magic bullet for all of your problems. Most people focus on what the the Additional Insured Status does to help you. We also need to look on the reverse, it is very important to know when additional insured status does not protect you. Along those lines, we also have a blog called Certificates of Insurance are Worthless and you can click here to read more.
For example, let’s say you tell your roofing subcontractor to move all of the debris into a pile in one part of your construction site. You specifically tell your roofer to put it at a specific place at the back of the property. The only problem is that the back of the property is also the edge of a steep hill overlooking Knoxville and Neyland Stadium. What a view that must be in the fall! One day, a lot of the debris falls down the hill and damages a house.
In this case, you and not your subcontractor are responsible for the damage, because you gave him specific instructions that he followed, and thus the debris falling is your responsibility. Even though you are named as an Additional Insured, the subcontractor’s insurance would not cover you if the homeowner sued you for damages, because you are at fault, not the subcontractor.
This may seem obvious, but it is important to note that additional insured status does not mean that your subcontractor’s insurance covers you in every situation. It only covers you when the subcontractor makes an error that leads to you being sued. This means that if your subcontractor was not involved in the part of the operation that led to the lawsuit, you cannot rely on the additional insured endorsement to protect you.
For example, if you hire a subcontractor to do the drywall, but you do the kitchen work yourself, you cannot expect the additional insured endorsement to help you with a lawsuit about problems with the kitchen.
While it may come as a surprise, even if something is the subcontractor’s fault, his insurance might not cover you if you are sued for it. This is because additional insured protection only kicks in when the person sues both you and the subcontractor.
For example, let’s say that your roofing subcontractor did a bad job on one of the skylights. He did such a bad job that during the first major thunderstorm after the homeowners moved in, water leaked through the skylight and caused serious water damage. The homeowners sue you. Because your window installation subcontractor named you as an additional insured for Products and Completed Operations, you expect that his insurance will cover you in this lawsuit. But it won’t.
The homeowners did not sue the window installation subcontractor when they sued you, they only sued you. This means that your additional insured status will not kick in to protect you, and you are on your own.
Being named as an additional insured by your subcontractors is not enough. You will need your own insurance to protect you.
If you are one of those that really likes to learn, we have the place for you! Click here to read our Complete Guide to Certificates of Insurance. Shockingly, we have actually published a book just on Insurance Certificates and you can download it there as well. If you are able to absorb all of that information, you will know more than most insurance agents on the subject, and if you are an insurance agent reading this, you're welcome! 😉
Veritas Risk Management, Inc. offers proactive risk management services covering a wide variety of topics. Veritas Risk Management, Inc. does not engage in the practice of law, accounting, or tax consulting. We encourage everyone to consult with his or her own professional advisor for details concerning his or her specific facts, situations, and circumstances.