By: Victoria Davies, Partner, Jones Walker LLP
September 8, 2023

Contractors that have experience with claims under a project owner’s builder’s risk insurance policy will appreciate that it is not only important that your work is covered but also that you are an additional insured on the owner’s policy. Being an additional insured gets you a seat at the table and direct access to coverage for covered claims and also protects you from the risk of a subrogation claim from the builder’s risk insurance carrier for the covered loss.

We recommend that our general contractor clients ask the owner early on about any builder’s risk insurance the owner may have on the project (or intends to place on the project) and whether contractors and subcontractors are included as additional insureds. As part of that conversation, general contractors will want to request a copy of the builder’s risk policy summary, declaration page, or term sheet in order to verify the coverage, including who is an additional insured and what the deductibles are for different covered losses under the policy. (A copy of the policy itself is preferred, but in our experience, owners are not willing to provide a copy of the policy.) In addition to broaching this topic with the owner and requesting information about the builder’s risk policy, contractors should check their contracts for owner’s builder risk insurance requirements and language stating that contractors and subcontractors are additional insureds on the owner’s builder’s risk insurance policy.

While the intent of builder’s risk insurance is to cover the interests of owner, contractor, and subcontractors on the project as insureds, and there is typically no extra cost for covering contractors and subcontractors as insureds, contractors and subcontractors are not always included as insureds.

Each builder’s risk policy is different, but in recent years, we have found that more and more builder’s risk policies require that there be a written contract in which the named insured is a party that contains a requirement that a person be an additional insured on the policy in order for that person to be considered an additional insured.

Here is an example of additional insured(s) wording on a recent builder’s risk policy summary:

Additional Insured(s): When any Named Insured is party to a written contract or agreement that requires owners, contractors, subcontractors, …or any other legal entity to be identified as an additional insured …, this Policy includes the legal entity as an additional insured….

Based on this example wording, if your construction contract requires the owner to secure builder’s risk insurance but does not state that you are an additional insured on the builder’s risk insurance, you would not be an additional insured. In order for you to be considered an additional insured, you would need to have language in your contract requiring the owner to include you as an additional insured on the owner’s builder’s risk insurance. It is important that the language require that you be an “insured” or “additional insured”, depending on the policy, and not just state that that your interests are covered by the policy. We have seen builder’s risk insurers take the position that only those contractors and subcontractors required to be named as insureds by contract are additional insureds on the policy; it was not enough that the contract required that the interests of contractor and subcontractors were covered.

Why does your insured status matter? If you are not an insured on an owner’s builder’s risk policy, even if your work is covered, you will not be able to access the coverage for your lost or damaged work unless the owner makes a claim (and the owner may not want to make a claim). Also, if you are not an insured, you could face a subrogation claim for the loss from the builder’s risk carrier and ultimately be responsible for paying for the loss.

In our view, it is not a bad idea for general contractors to request that subcontractors be included as additional insureds on the builder’s risk policy as well (if subcontractors are not already required by the prime contract to be included). Sophisticated prime subcontractors will ask for this and will want to be an additional insured on the owner’s builder’s risk policy for the same reasons as you.

When representing prime subcontractors, we recommend that they undertake the same diligence with respect to the builder’s risk insurance provided by the owner or the general contractor, as the case may be, and look for the same additional insured contract wording. Subcontractors should be looking to see whether the prime contract contains builder’s risk insurance requirements and states whether subcontractors are additional insureds on the builder’s risk insurance policy. If the owner is carrying the builder’s risk insurance, as a subcontractor, you will want to make sure the language naming you as an additional insured on the policy is in the prime contract. Hopefully, the general contractor was on top of this issue when negotiating the prime contract and the wording is there. If not, however, the subcontractor may want to inquire about the possibility of an amendment to the prime contract. We have seen situations where a subcontractor uncovered that the prime contract did not even require the owner to name the general contractor as an additional insured on the owner’s builder’s risk policy, and in that case, it was in both the general contractor’s and subcontractor’s interest for this to be cleaned up in an amendment to the prime contract.

If the general contractor is the one providing the builder’s risk insurance and the additional insured language is not in the prime contract, the subcontractor will want to request that its subcontract with the general contractor include the requirement that the subcontractor is an additional insured on the policy.

We cannot recommend enough that you ask about owner’s builder’s risk insurance, check the wording of your contracts, and if not already included try to get in language stating that you are an additional insured if you desire to have additional insured status. Because each policy is different, you should also consult with your insurance and legal team to make sure your interests are protected for each project. If you are not able to be an insured on the owner’s builder’s risk insurance policy on a particular project, you will want to discuss with your team the risks of not being an additional insured and consider whether it makes sense for you to place your own builder’s risk insurance policy for the project or take other measures to protect your interests.

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The views expressed in this article are not necessarily those of ConsensusDocs. Readers should not take or refrain from taking any action based on any information without first seeking legal advice.