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I.
INTRODUCTION
A significant issue in construction defect litigation - and in other types of disputes as well - is "additional insured" coverage and the indemnitor/indemnitee relationship. For example, a small subcontractor, in order to obtain a job, may agree to indemnify the general contractor, the developer, and the owner for sums far in excess of the subcontractor's financial means and wholly out of proportion to the benefit that the subcontractor obtains from the job. Likewise, by adding an "additional insured" endorsement, the subcontractor's insurer, frequently for a small premium and with little or no underwriting, may undertake to insure exposures far beyond that which the underwriter contemplated.
In this article, the authors seek to tackle many of the recurring issues affecting those involved in the construction trades: developers and owners, the insurance industry, attorneys who are retained to defend parties in construction defect suits, and attorneys who provide coverage advice in connection with construction defect litigation. In this article, we cover the following issues:
* How "additional insured" status is obtained.
* Coverage issues raised by "additional insured" endorsements.
* The impact on the insurer that agrees to defend and indemnify under an "additional insured" endorsement, and the insurer that declines to do so.
* The rights that are conferred by certificates of insurance evidencing the presence of liability insurance.
* The laws of the various states interpreting indemnity agreements and exculpatory agreements entered into between parties to construction and other contracts.
* Some alternatives that exist through the insurance industry to simplify the issues generated by "additional insured" endorsements and to lessen the likelihood of tensions arising following construction losses.
II.
THE DILEMMA OF ADDITIONAL INSUREDS AND
INSURED CONTRACT--UNTYING THE GORDIAN KNOT1
A. Introduction
As construction defect litigation continues to establish itself as the next
asbestos, the next pollution, or the Y2K that never was, the coverage disputes that result are increasingly taking center stage. Two of the more perplexing coverage issues involve developers or general contractors tendering claims as additional insureds under the general liability policies issued to subcontractors, and the coverages available to subcontractors for the liability assumed in their contracts with general contractors. This section will examine the dilemma of additional insureds and insured contracts.2
An entirely separate yet...