COMMUNITIES: PRIVATE PRACTICE
For the Client: Should the Engineer Be Listed as an Additional Insured?
BY NAHOM A. GEBRE, ESQ., P.E.
Because construction operations are inherently risky, most owners understand that a key function of the contract for construction is clear and effective risk allocation. The contract typically requires the contractor to indemnify the owner and the owner's engineer for claims caused by the contractor's negligence. In addition, the contract usually requires that the owner and the engineer be listed as additional named insureds under the contractor's commercial general liability insurance policy (see 6.03 C 7 and 6.03 F, EJCDC C-700, Standard General Conditions of the Construction Contract, 2012 Edition). Most contractors understand and accept the fact that both the owner and the engineer are exposed to claims arising from the contractor's operations—particularly claims involving job site injuries. However, some contractors resist including the engineer as an additional named insured. So, is it in the owner's interest to insist on the engineer's inclusion?
Contractors who resist giving the engineer status as a named additional insured generally raise one or more of the following arguments:
- Coverage is too expensive;
- Coverage is not available;
- It would make the contractor responsible for the engineer's negligence; or
- It is unnecessary.
But these arguments aren't really valid. First, this coverage is generally affordable and available. Second, while the coverage is narrow, it offers an important layer of protection for both the engineer and the owner without making the contractor responsible for the engineer's professional liabilities.
Most contractors' commercial general liability policies recognize the need to honor requests for additional-insured status if it is required by contract. Several standard endorsements issued by the Insurance Services Office Inc. (ISO), a publisher of standardized insurance policy language, cover additional insureds on commercial liability policies. Two of these, CG 2007 and CG 2032, are specifically intended to apply to engineers and other design professionals. The first of these covers entities directly engaged by the contractor. The second applies to engineers whose contract is solely with the owner or other entity. Otherwise, the two endorsements are essentially the same.
Both are blanket endorsements; that is, they do not mention a specific person but instead apply to any engineer or other design professional with which the contractor has a working relationship. They provide coverage that is limited to liability in connection with the named insured's operations. Liability is further limited to ongoing operations, specifically excluding completed operations. The general liability policy also excludes coverage for the sole negligence on the part of the additional insured. These endorsements also exclude liability for professional services; coverage for professional services is provided under the engineer's own professional liability policy.
Rights of an Additional Insured
So why is additional-insured status necessary? After all, the contractor, not the engineer, is responsible for claims and liability arising from the contractor's operations. And the engineer is protected by the indemnity provision in his contract, right?
While it is true that the indemnity provision protects the engineer, additional-insured status provides a backup layer of protection in the event that the indemnity provision is declared invalid or cannot be enforced because of the contractor's financial insolvency. Additional-insured status is independent of any other contract provision, including indemnification. Even though the engineer may not be found liable for claims involving job site injuries, considerable time and money can be expended to defend against such claims, particularly in cases where the engineer is perceived as the "deep pocket" due to statutory limitations on workers' compensation awards.
As an additional insured, the engineer has all the protections afforded the contractor under the policy. Also, the engineer avoids the threat of subrogation by the insurance carrier, which cannot subrogate against an insured. Most importantly, the engineer gains the right to be defended by the carrier. This is also important for the owner because it avoids unnecessarily eroding the limits of coverage available under the engineer's professional liability insurance policy and preserves those limits for the very purpose that the owner required this coverage—to protect the owner from losses due to the engineer's professional negligence.
Be Clear Up Front
The best way to avoid arguments and confusion over the necessity of according the owner and the engineer additional insured status is to include ISO-specific endorsement requirements in the bidding documents. Then the contractor will know from the beginning what is required to satisfy the contract's additional-insured requirements.
Nahom A. Gebre, Esq., P.E., is a risk management attorney for Victor O. Schinnerer & Co. Inc. CNA/Schinnerer's professional liability insurance program has been commended by NSPE since 1957.