Additional Insured Promise Is No Good If Policy Is Not Purchased

If you think your company is protected by the other party's promise to make your company an "additional insured" on its insurance policy, think again.  As an Illinois court case recently made clear, that promise is just hot air unless the contracting party actually purchases a policy or endorsement.

In the Illinois case, a concrete subcontractor's excess liability carrier settled a multi-million dollar personal injury claim brought against the subcontractor by an employee of a subsubcontractor working on the project. The sub's excess carrier then brought a claim against the subsub and the subsub's own insurance carriers, arguing that the subsub and its insurers should be liable for the subsub's employee, not the sub. The crux of the claim was that the subsub had orally agreed to name the sub, the general and the project architect as additional insureds at the time of the personal injury accident and that this oral commitment was enough to bind the insurer.

The Illinois courts disagreed. They ruled that additional insureds needed to be documented in writing as required by the excess liability insurance coverage at the time of an event triggering coverage. Even though the sub, the general and the project architect were added in writing as additional insureds after the accident, that was too late to permit coverage of the subsub's employee's claim. As a result, the subcontractor's insurer bore the responsibility for the subsub employee's claim and the subcontractor's insurance premiums were sure to rise dramatically.

As with most aspects of construction, the moral here is to document these matters clearly and in writing before work commences on the project. The failure to insure that coverages and insureds were properly documented led to unexpected and undeserved costs to the subcontractor, general contractor and owner in this project. In instances like these, what may seem like a small detail can lead to extraordinary costs.

Citation for lawyers: Cincinnati Ins. Co. v. Gateway Constr. Co., Inc., 865 N.E.2d 395 (Ill. Ct. App. 2007).