Construction companies and contractors are required to maintain insurance not only for their benefit, but for the benefit of the owner of the property where they are providing services as “additional insureds.” Many companies use what is known as a “blanket additional insured rider” to provide the required coverage to the property owners. However, a recent court decision has significantly limited the effectiveness of blanket riders.
Blanket riders are often used by large contractors who may be working on multiple jobs at once. It may not be feasible from an administrative and expense perspective to obtain separate endorsements from the insurance carrier naming all additional insureds on each job. Instead, a “blanket rider” creates additional insured status for anyone with whom the contractor has entered into a contract which requires that insurance coverage be provided.
However, a recent appellate decision in New York greatly narrows the scope of insurance provided by a blanket rider. In Gilbane Building Co. v. St. Paul Fire and Marine Insurance Co., a contractor had entered into a contract to perform construction services to a large municipal agency. The parties to the contract were the agency and the contractor. One term of the contract required the contractor to provide insurance for the agency and its construction manager. In the case, the contractor’s general liability insurance policy included a blanket rider which extended additional insured status to anyone who the contractor had “agreed to add as an additional insured by written contract.”
After an incident at the job site, litigation ensued in which the municipal agency and its construction manager were named defendants. Both tendered defense to the contractor’s insurer, but the insurer denied coverage to the construction manager. The construction manager challenged the insurer’s decision. The appellate court reversed the trial court’s decision in the matter and held that no coverage existed for the construction manager which, unlike the municipal agency, had not signed the contract.
This decision could create significant problems for contractors, both with regard to ongoing and future projects. It is not unusual for a property owner to employ a project manager or other parties to oversee construction particularly on large construction projects. If a contractor was supposed to provide insurance to these third party beneficiaries, but it’s found to be invalid as provided in this case, the contractor could be held personally liable if the third party is sued.
Construction companies and contractors must take precautions going forward particularly as the terms of blanket riders are often not negotiable. There are 2 main options to consider:
- Require all parties who are to be additional insureds to sign the construction contract; or
- Rather than relying on a blanket rider, obtain endorsements specifically naming additional insureds for each job.
With either of these options, the cost in time and money is well-worth it considering the risk of not having coverage when you need it most.
For those companies currently operating with blanket riders, it should be noted that the Court’s decision relied heavily on the contract and insurance policy language. Accordingly, if you have concerns about the scope of your insurance coverage, it is important to speak to a qualified attorney about your specific policy.
Read more about insurance coverage practice
This post does not constitute legal advice or establish an attorney-client relationship.