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CGL Contractual Liability, Additional Insured Status, Primary and Noncontributory, and Other Stuff You're Sick and Tired of Dealing With

​Author: VU Faculty

An agent writes, "Under the CGL contractual liability exclusion/coverage would the insured, a contractor, have coverage if he signs a construction contract that says he will provide primary and non-contributory coverage to the additional insured as per the written contract? A COI is required showing that coverage to the additional insured is primary and non-contributory."

 

"Under 2. Exclusions b. Contractual Liability (2), would the insured, a contractor, have coverage where they sign a construction contract where the insured needs to provide primary, non-contributory coverage to the additional insured as per the written contract? A COI is required showing that coverage to the Additional Insured is primary and non-contributory."

I'm not sure I exactly understand the question. Are you asking if contractual liability coverage fulfills a requirement by an additional insured that the downstream party's CGL coverage be primary and noncontributory? If so, then the answer is, "No." In fact, it's impossible for you, the agent, to "attest" that your insured's coverage is primary without reviewing the additional insured's CGL policy! In spite of this, agents every day indicate that this is the case.

Faculty Response
You've got two totally separate issues here:  one is contractual liability and the other is the basis of payment for an additional insured ("primary and noncontributory").  Just because the insured signs a contract in which he (foolishly) agrees to provide a bunch of insurance coverage doesn't mean that entire obligation is covered by the contractual liability feature of his CGL. The policy provides specific, and very limited, coverage for contractual liability assumed by your client. A complete discussion of that coverage would fill an entire textbook and is far beyond the scope of this resource.
 
The other issue is whether you can certify that your policy is primary and noncontributory. It's possible to argue that in some respects, it is. But equally, in other respects it's not. To go on the hook in writing that your policy is "primary and noncontributory" would be a huge mistake. Find out from your insurance company exactly how they want you to respond to that question and do exactly what they tell you. There is excellent advice available here at the Virtual University on how to deal with questions like this. Follow that and you'll be OK. 

Faculty Response
The coverage found under “insured contracts” is separate and distinct from that of additional insured and thus does not provide “primary and non-contributory” for any person or organization with the status of additional insured. Also, “insured contract” does not confer additional insured status on any indemnitee – a separate additional insured endorsement must provide such coverage. It is the “other insurance” provision of the CGL that determines the priority of coverage when an insured has coverage in two places (primary and non-contributory) and not indemnification obligations covered by an “insured contract.” 

Faculty Response
If you will look at the "other insurance" condition in the CGL, as long as an ISO additional insured endorsement is used, then the coverage provided to the additional insured is primary. If the additional insured has the same "other insurance" language on his own policy, then it does not contribute. If all that is true, then only for the GL limits, the coverage is primary and noncontributory. 

Faculty Response
The only contractual liability coverage provided by the CGL is what is provided in the definition of "insured contract." That would not include changes to conditions such as the other insurance provision or adding anyone as an additional insured. What your customer is being asked to do on their certificate of insurance is irritatingly obsolete. Ever since 1998, the ISO CGL forms have included language that says that if the insured has been added to someone else's policy as an additional insured, then the insured's insurance is excess over the other parties, thus accomplishing what is desired in the request for primary and non-contributory kinds of statements and endorsements. You likely need to have a talk with the folks asking for that on the certificate and explain how it is unnecessary today, and impossible to comply with the request. I have included a short article on the subject below.
 
Primary and Non-Contributory 
When your contractor insured tells you that his general contractor wants to be added as an additional insured and he wants your insured's policy to be primary and non-contributory, what does that mean? It means that the general contractor wants your insured's policy to be the primary source of recovery and does not contribute to defense or indemnification should the general contractor be sued as the result of an accident caused by your insured. The general contractor doesn't want to tap into his own CGL policy unless and until your subcontractor's policy limit is exhausted. What do you do?

First, here's what not to do: Don't just add primary and non-contributory wording to the certificate of insurance. Your insured's CGL may not be primary and non-contributory and you can't make it happen just by saying so on the certificate. Besides, whether your insured's CGL is primary may depend entirely on the wording in the general contractor's CGL! If the general contractor's policy is a 1998 or later edition of the ISO CGL, it includes the following wording:

"This insurance is excess over any other primary insurance available to you covering liability for damages arising out of the premises or operations for which you have been added as an additional insured by attachment of an endorsement."

If the general contractor's policy includes this wording, he (or his lawyer or his insurance agent) is asking for the primary and non-contributory wording out of ignorance of the wording in his own policy. That doesn't help you at this stage of the game, because all your insured wants is a certificate of insurance that will allow him to get on the job and get paid; he doesn't want a hassle and he doesn't want you to hassle his general contractor.

Ask your insurer if it can attach an additional insured endorsement that makes the policy primary and non-contributory as respects the additional insured. There is no standard endorsement for this purpose, so the insurer might have to file with and receive approval from regulators for such an endorsement, unless it's a surplus lines company. If the company won't or can't provide the endorsement, then you can try talking to the general contractor (or his lawyer or insurance agent) to find out if his policy includes the above wording and/or convince him to drop the primary and non-contributory wording. If that doesn't work, you must "just say 'no'" to your insured or find another company that will provide the necessary wording. 

Faculty Response
The contractor would have coverage – they are the insured. The real question is, does the additional insured have the protection required in the contract? I’d say make sure the insurer knows about the requirements of the contract, and verify with the insurer that they are willing, or unwilling, to configure the policy to meet the requirements of the insured’s contract with the additional insured. Issuing a certificate of insurance without nailing all that down with the carrier could be an E&O trap for the agency. 

Faculty Response
No. What you describe is a performance obligation, and such failure to perform is not insurable. Contractual liability coverage is applicable to an assumption of liability only. 

Faculty Response
The primacy of coverage is actually governed by the upstream party’s CGL policy. In other words, if you are asked as the downstream party’s agent to “attest” that your insured’s coverage is provided on a “primary and noncontributory” basis, you would be guessing what the upstream party’s policy says. Technically speaking, an agent cannot confirm such a request with any certainty. All you can do is confirm additional insured status by giving the ISO form number or a copy of a proprietary company form and telling the upstream party to check the Other Insurance clause of their CGL policy to determine for themselves whether coverage is “primary and noncontributory."

So, when asked to provide confirmation of primary/noncontributory, simply refer the party to his own CGL policy and cite the ISO AI endorsement number you're using or provide a copy of a proprietary company endorsement. Let the other party make the primary/noncontributory determination. I've seen a couple of non-ISO AI endorsements that actually define what "noncontributory" means. While I wouldn't use this exact language, here is an example:

“Non-contributory” means that the other insurance available to the additional insured will apply as excess and will not contribute as primary to the insurance provided by this endorsement.

Remember...rarely, if ever, will you see a contract your insured has signed that will define what is meant by "primary and noncontributory." The policy form(s) typically address "primary" but rarely define what is meant by "noncontributory," though customary industry (construction and insurance) is that it means "excess." Most important, NEVER EVER EVER sign an agent "affidavit" or similar document saying that your insured's insurance program complies with the contract he's signed. Of all the contracts I've seen, not one has ever included an indemnity agreement that is fully insurable. For example, check out this rascal:

“To the fullest extent permitted by applicable law, Contractor shall insure and defend, indemnify, and hold harmless Owner and Agent and their respective officers, directors, members, employees, agents, shareholders, partners, joint venturers, affiliates, successors, and assigns from and against any and all liabilities, obligations, claims, demands, causes of action, losses, expenses, damages, fines, judgments, settlements, and penalties including, without limitation and without regard to the cause or causes thereof….” [emphasis added]

I tell people that come to my seminars on this that if they have a product that can comply with this indemnity agreement, then please stand up because they're about to corner the insurance market for the construction industry. Sadly, there are agents all over the country every day signing these attestment forms. Given the increasing attention being given to this by state insurance regulators, this could prove to be problematic for many.

In addition, contractual liability and additional insured status are not synonymous and primacy won’t be governed by the provision you’ve cited. Check out this article:

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