Insurance Law Lesson 80: Beyond the COI (2)

Additional insured provisions are fairly standard in construction contracts. Many require AI coverage not just for the hiring entity, but also for additional parties “upstream.” For example, a general contractor might require each subcontractor to have the general contractor named as an AI and also the project owner, the architect, and maybe a construction manager. The GC might get a COI for each of them, and the prior lessons discussed hurdles regarding ensuring that coverage is, and remains, in place.

Another protection is “hold harmless” provisions. The direct result is that it makes the “downstream” entity responsible to pay for defense and indemnity of the “upstream” entity(s). But, there can also actually be insurance protections due to these provisions.

The hold harmless provision makes the named insured/subcontractor liable for the defense and indemnity of the upstream entity. That liability – the subcontractor’s liability to the upstream – is probably an insured contract (see lesson 33) and, as such, not subject to the contractual liability exclusion (see lesson 32).

This coverage will technically be an indemnity coverage. In other words, first the upstream entity incurs the liability (by paying for its defense counsel and/or payment to the claimant) and then it seeks reimbursement from the sub, who then seeks reimbursement from the insurance company. But, in practice, if the insurer will end up paying anyway, it may well just take on the defense so that it can control the defense and keep the defense coordinated.

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