Workplace Accidents and the Additional Insured Clause

Owners and contractors depend on being protected for subcontractor employees' workplace accidents by requiring that subcontractors include the owner and contractor as additional insureds on their commercial general liability (cgl) policies. When a subcontractor's employee is injured on the job site and sues the owner and contractor for negligence (since worker's compensation laws normally prevent the employee from suing the subcontractor, its employer), the owner and contractor assume they can tender the defense of the lawsuit to the subcontractor's insurer since the owner and contractor are, after all, additional insureds under the subcontractor's cgl policy.

Insurers were not happy about this arrangement, however, because they ended up incurring defense costs that were out of line with the premiums charged to the subcontractor. The "fix" to this (for endorsements issued after 2004) was to change the additional insured endorsement to exclude coverage where the owner's or contractor's negligence is alleged --- but no claim is made against the subcontractor.

So what should owners and contractors do to protect themselves? Certainly, they should require each subcontractor to provide a copy of the additional insured endorsement on its cgl policy so that the owner and contractor can determine whether the endorsement excludes coverage where the owner's or contractor's negligence, but not the subcontractor's, is alleged. If it does, the owner and contractor can require the subcontractor to obtain an additional insured endorsement that does not exclude this coverage. If that is not possible, or economically not feasible, the owner and contractor may have to rely on a carefully drafted indemnification provision --- which will be the subject of this writer's next blog entry.

Thanks to David S. White, Senior Counsel with Thompson & Knight, LLP in Dallas who provided the resource material for this blog in his article on this subject in the January 2007 issue of The Practical Real Estate Lawyer. To purchase the online version of this article, go to http://www.ali-aba-org/ and click on "online". (This entry posted by Karen Estelle Carey, a member of Womble Carlyle's Real Estate Development group.)