Just because your subcontractor’s insurance policy endorses you as additional insured does not mean that you necessarily have the full additional insured coverage that you need. There are two main types of additional insured endorsements, and you need to have both. This will protect you both while the job is in progress and after the job is completed.
First, you want to be protected when the project is ongoing. This is an “Ongoing Operations” Additional Insured Endorsement. This is the typical form of additional insured status.
Imagine that you hire one subcontractor to put up and manage the scaffolding, and another subcontractor to do the framing. The scaffolding subcontractor didn’t finish putting together a section of the scaffold, and didn’t tell anyone about it. The next day, the framer got there before the scaffolding subcontractor. He texted you the night before to ask if the scaffolder came and set up the scaffold, and you told him yes–that was what the scaffolder had indicated.
A few seconds later and three stories lower, the framer’s first thought was “Am I paralyzed?” His second thought was “How am I going to get to the hospital since nobody else is here?” But his thought the next day was “Who do I need to sue to pay for my thousands of dollars in medical bills and lost time to work?”
The framer is going to sue the scaffolding subcontractor, but he is also going to sue you as the General Contractor.
If your roofing subcontractor endorsed you as ongoing operations additional insured on his policy, then his insurance policy will defend you and pay the damages that the framer is seeking from you (assuming there are not other exclusions at play).
Second, you want to be protected when the project is finished. This is a “Products and Completed Operations” additional insured endorsement.
Imagine that you’ve finished building an expensive home. You’re happy with the finished product, and you’re happy to be finished with that project.
The house has been sold to a young family. After living in the house for a few weeks, it catches on fire. The entire house burned to the ground, and the family’s belongings were destroyed as well.
An investigation reveals that the electrician did the wiring wrong, causing the fire. The family sues him, but since he was your subcontractor, they also sue you as the GC. What you thought was a profitable completed project might now cost you hundreds of thousands of dollars in liability.
This is why you need to be Additional Insured for Products and Completed Operations. Many people skip this step, and thus are only covered for incidents that happen during the project. This protects you when there are lawsuits due to issues with the finished project caused by a subcontractor, and both you and the subcontractor are sued. The subcontractor’s insurance will have to defend you and pay for damages against you.
It is crucial to understand that both ongoing operations and products and completed operations additional insured endorsements play a vital role in protecting your subcontractor's insurance coverage.
Take the time to thoroughly review their policies to ensure that you have the necessary protection in place. Alternatively, let us assist you in this process! Our team is ready to review up to 10 Certificates of Insurance from your subcontractors FOR FREE! This will provide you with the peace of mind knowing if you are adequately covered or if you are at risk.
Need more information about Certificates of Insurance? Click the button below to download our Definitive Guide to Certificates of Insurance.
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.