Additional insured (“AI”) requirements for commercial general liability (CGL) policies are very common in construction contracts. An Owner routinely requires its general contractor (“GC”) to provide AI coverage for itself, its affiliates, and sometimes a handful of other entities (lender, architect, etc.). In turn, the GC mandates its subcontractors to provide AI coverage for the GC, the Owner, and a cast of other characters. While frequently used, for good reason, this risk transfer tool is often misunderstood. In this post, I will explain the purpose of AI coverage, identify what it does and does not cover, and provide answers to a few misconceptions about additional insured coverage.
The Purpose of Additional Insured Coverage
The design of AI coverage is to trigger the insurance procured by lower-tier contractors. The Owner, GC, and subcontractors all have CGL insurance, but the goal of additional insured coverage is to make sure that someone else’s insurer will be on the hook to provide defense and indemnity should