One of the most important tools used by property developers and general contractors to limit their liability exposure for construction-related accidents is requiring “additional insured” protection from downstream contractors. In practice, developers and general contractors use additional insured status to transfer risk/liability from their own liability insurance policies to the liability policies held by their downstream contractors. This risk transfer, in turn, allows developers and contractors to reduce their overall exposure, resulting in premiums savings under their own insurance programs.

Generally, a developer and/or general contractor obtains “additional insured” status through an endorsement to a subcontractor’s or vendor’s liability insurance.  Importantly, these endorsements usually contain certain technical limitations narrowing the scope of the coverage afforded to additional insureds. Over the last few years, liability insurers have increasingly been including a specific restriction in their additional insured endorsements further limiting the scope of coverage afforded to additional insureds; specifically, endorsements requiring a “direct contract” between the Named Insured and the person or organization/entity seeking additional insured protection.   As detailed below, New York courts have broadly applied this direct contract requirement, making it necessary for developers and general contractors to update their risk transfer procedures in response.

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Emerging Issues Narrowing Additional Insured Cover Under CGL Policies Under New York Law