Anwar was severely injured while working on FCL’s jobsite, so he sued FCL as the general contractor. FCL had a written contract with all its contractors to include it as an additional insured on their policies so Anwar’s suit was forwarded to JAK, Anwar’s employer. JAK’s carrier refused to provide the automatic additional insured coverage because JAK was a subcontractor of Suburban not FCL. However, Suburban did have a contract with FCL. The district court agreed with JAK’s carrier but FCL appealed.
Read below to see whether the appellate court agreed with the trial court or with the plaintiff?
Anwar Oshana, an employee of JAK was seriously injured falling from a steel beam while on the job site controlled by FCL Buildings., Inc. (FCL). FCL had subcontracted the steel fabrication and erection at the job site to Suburban Ironworks, Inc. (Suburban). Suburban had then subcontracted the erection work to JAK.
Oshana filed suit against Suburban and FCL for their breach of duties in providing job site safety. Suburban and FCL then requested coverage from JAK’s CGL carrier, Westfield Insurance Company. Westfield denied FCL’s request because it did not qualify as an additional insured under JAK’s policy.
JAK had entered into a contract with Suburban that required it to provide Suburban and FCL with the same level of insurance that it would purchase for itself in the event of a mishap during the steel erection job. Accordingly, JAK purchased the CGL from Westfield that contained an additional insured endorsement that read:
“Section II-Who is an Insured is amended to include as an additional insured any person or organization for whom you are performing operations when you and such a person or organization have agreed in writing in a contract or agreement that such person or organization be added as an additional insured.”
Westfield filed for instant declaratory action that FCL was not an additional insured. During the cross-motions, Westfield argued that because no contract existed between JAK and FCL that FCL was not an additional insured. FCL argued that the wording in the Suburban/JAK contract specifically referred to FCL and thereby incorporated FCL into that contract. The circuit court agreed with Westfield. FCL then filed an appeal.
FCL arguments were dismissed because they were contrary to the wording in the endorsement. The court held that the endorsement required two conditions to an entity to be an additional insured.
- The named insured must be performing operations for such an entity
- The named insured and that entity must have an agreement whereby the entity is to be added as an additional insured.
FCL did not meet these conditions and therefore was not an additional insured under the JAK policy.
The circuit court decision was affirmed.
Westfield Insurance Company, Plaintiff-Appellee v. FCL Builders, Inc., Defendant-Appellant, No.1-10-0521, March 8, 2011, 407 Ill. App.3d 730,948 N.E.2d, 350 Ill. Dec 46
Automatic additional insured’s endorsements
Several endorsements are available to name others as additional insureds on a CGL policy. However, some businesses have so many clients requiring additional insured status that ISO developed automatic additional insured endorsements for ease of handling. These endorsements are very helpful in easing the administrative burden, but it is important to understand their limitations.
Read the PF&M article describing the four automatic additional insured endorsements and their uses.
ADDITIONAL INSURED ENDORSEMENTS (CG 20)
CG 20 33–Additional Insured–Owners, Lessees, or Contractors–Automatic Status When Required in Construction Agreement with You (04 13 changes)
(Use with CG 00 01 and CG 00 02)
This endorsement provides automatic additional insured status to any party for whom the named insured performs operations. However, this is only when there is a contractual requirement for that party to be an additional insured on the named insured’s coverage form. It is also only with respect to losses caused by the named insured’s acts or omissions or acts or omissions of parties that act on its behalf in performing continuing operations for the additional insured. Coverage is limited to what the law permits.
Coverage and limits are further limited to not being broader than what that contract requires.
CG 20 34–Additional Insured–Lessor of Leased Equipment–Automatic Status When Required in Lease Agreement with You (04 13 changes)
(Use with CG 00 01 and CG 00 02)
This endorsement provides automatic additional insured status to any party from whom the named insured leases equipment. However, this is only when there is a contractual requirement for that party to be an additional insured on the named insured’s coverage form. It is also only with respect to liability for bodily injury, property damage, or personal and advertising injury caused by the named insured’s maintenance, operation, or use of equipment it leases from that party. Coverage is limited to what the law permits. Coverage and limits are further limited to not being broader than what that contract requires.
CG 20 35––Additional Insured–Grantor of Licenses–Automatic Status When Required by Licensor (04 13 changes)
(Use with CG 00 01 and CG 00 02)
This endorsement provides automatic additional insured status to any party that grants a license to the named insured. However, this is only when there is a contractual requirement for that party to be an additional insured on the named insured’s coverage form. It is also only with respect to its liability because it granted a license to the named insured. Coverage is limited to what the law permits. Coverage and limits are further limited to not being broader than what that contract requires.
CG 20 38–Additional Insured–Owners, Lessees, or Contractors–Automatic Status for Others When Required in Written Construction Agreement (04 13 addition)
(Use with CG 00 01 and CG 00 02)
This endorsement is identical to CG 20 33 except that it adds a new group as automatic additional insureds. This group is any party the named insured is required to make additional insureds based on a construction contract with another party. The named insured is not required to have a contract with the others. However, when the construction contract expires, all automatic additional insureds that were part of that contract are no longer additional insureds.
Insuring a steel erection contractor
A building isn’t a building until it is framed. Many times, that frame is in steel. The steel is generally manufactured off site and then delivered for the steel erection contractor to install. These contractors work within exacting constraints and often under tight time frames. As in this court case, the erection contractor may be a subcontractor to another subcontractor.
Read below to review the steel erection contractors’ narrative.
Category: Contractors – Construction
SIC CODE: 1791 Structural Steel Erection
NAICS CODE: 238120 Structural Steel and Precast Concrete Contractors
238130 Framing Contractors
Suggested ISO General Liability Codes: 97652, 97654, 97655
Suggested Workers Compensation Codes: 5057, 5069, 5059, 5040
Description of operations: Steel erection contractors build, repair, or maintain the steel framework for buildings and other structures, including high-rise apartments and offices, industrial complexes, and warehouse buildings. Much of their work is structural and load bearing. The hazards vary considerably depending on the size of the job and the number of stories. While steel is flexible, it can corrode in humid climates and can lose strength at high temperatures, which could result in collapse. Operations may involve the use and placement of heavy steel girders and I-beams. These may be welded together or fastened with bolts or hot rivets.
Property exposures at the contractor’s own location are generally limited to those of an office, shop, and storage of materials, equipment, and vehicles. Ignition sources include electrical wiring, heating, and air conditioning systems. The exposure increases if fabrication, which includes cutting and welding, is done on premises. Welding involves the use of tanks of gases that must be stored and handled properly to avoid loss. The absence of basic controls such as chained storage in a cool area and the separation of welding from other operations may indicate a morale hazard. Some material may be stored but it is not susceptible to damage by fire or weather.
Crime exposure is from employee dishonesty. Background checks should be conducted prior to hiring any employee. All orders, billing, and disbursements must be handled as separate duties and annual external audits conducted. All items should be physically inventoried on a regular basis to prevent theft.
Inland marine exposures include accounts receivable if the contractor bills customers for services, computers, contractors’ tools, and equipment, including scaffolding, hoists, and portable welders, goods in transit, installation exposure, and valuable papers and records for customers’ and suppliers’ information. The contractors’ equipment schedule can include large cranes used to put beams in place. Equipment and supplies are subject to drop and fall from heights, especially when lifting girders or beams above ground. Since any accident may trigger both the equipment and installation coverages, as well as possible third-party liability, many contractors prefer to hire a crane with a licensed operator. Goods in transit consist of tools and equipment as well as materials owned by either the insured or the customer for installation at the job site. I-beams and girders are usually drop shipped to the site by the manufacturer. If the insure transports these, special equipment is necessary due to the length of the beams. Materials are not highly susceptible to damage in transit. An installation floater will be needed if the materials to be installed are delivered to the site in advance of the installation. Hazards to machinery, tools, or building materials left at job sites and awaiting installation include theft, vandalism, damage from wind and weather, and damage by employees of other contractors. Some construction supplies may be target items for theft by third parties or employees.
Premises liability exposures at the contractor’s office are generally limited due to lack of public access.
At the job site, steel erection always involves work at heights. Persons and property may be injured by falling objects, especially when work is done near existing structures or residences. Pedestrians and vehicles must be protected from falling objects through barricades and netting. Welding, cutting, and riveting may cause fires or serious injuries to the public or other contractors’ employees. Repair and maintenance work may entail closing roads and redirecting traffic. Improper signage or barricading could result in a vehicle collision and catastrophic loss of life. Both the structure under construction and the equipment (such as cranes) may create an attractive nuisance hazard to children who enjoy climbing. All equipment must be disabled when not in operation to prevent untrained individuals from using it. Fencing must be in place with appropriate warning signs to prevent trespassing.
Completed operations liability exposure is potentially severe should a structure collapse due to the number of people who could be injured or killed and the potential for damage to the property of others. The designer and engineer of the project, the quality of materials, and the integrity of the completed structure are all critical. The absence of an aggressive quality control program that documents full compliance with all construction, material, and design specifications may indicate a morale hazard and make it impossible to defend against serious claims. Any changes made by the engineers and carried through in the design must be noted prior to implementation. Hazards may increase in the absence of proper record keeping of work orders and change orders, as well as inspection and signed approval of finished work by the customer.
Professional liability exposures may be serious if the insured does design work or alters plans.
Automobile exposures can be high due to the transport of girders, beams, equipment, machinery, and supplies to and from job sites. Drivers should be properly trained to prevent overturn and to navigate through high traffic areas. Serious property damage or injury to employees of other contractors, passing pedestrians, or motorists can arise during loading, transport, and unloading equipment and materials. Long drives with oversized equipment may lead to driver fatigue and resulting accidents.
For long-term projects away from home base, personal use of company vehicles poses a concern. Similarly, employees may use their own vehicles on company business for long periods, especially to transport crews to the jobsite.
Workers compensation exposure can be severe. Erection work always involves work at heights, with danger from falls or from falling objects. Sudden changes in wind or weather can make hoists and scaffolding less safe. Lifting and back injuries, hernias, sprains, and strains can occur from loading or unloading machinery or setting up structural parts. Collapse of or overturn of equipment may result in severe injury or death from crushing or suffocation. Common hazards include slips and falls, foreign objects in the eye, hearing impairment from noise, cuts or puncture wounds, bites from insects or vermin, and exposure to pollutants.
Minimum recommended coverage:
Business Personal Property, Employee Dishonesty, Accounts Receivable, Computers, Contractors’ Equipment and Tool Floaters, Goods in Transit, Valuable Papers and Records, General Liability, Employee Benefits Liability, Umbrella Liability, Business Automobile Liability and Physical Damage, Hired and Nonownership Auto Liability, Workers Compensation
Other coverages to consider:
Building, Business Income with Extra Expense, Earthquake, Flood, Leasehold Interest, Real Property Legal Liability, Installation Floater, Cyberliability, Employment-related Practices Liability, Environmental Impairment Liability, Professional Liability, Stop Gap Liability, Unmanned Aerial Vehicles (UAV) (Drones)
Making contact
This court case could be used to explain an important insurance coverage limitation to a steel contractor. If you are interested in pursuing this approach, consider also offering to provide a survey.
Here is a business building letter for a starting point.
Dear [Name]:
If you try on a pair of shoes that don’t fit, you know about it promptly. If you buy insurance that doesn’t fit, you might not know it until it’s too late.
Our company has an extremely effective method of testing coverage by evaluating what kind of insurance, and how much, you should have. We are also able to identify coverage you may have that you don’t need. Our survey has earned high marks throughout [name of your city].
We urge you to take advantage of this no-obligation service. It is especially important now, with the many changes that have occurred in coverage and rates in recent years.
Please drop the enclosed business reply card in the mail today, give me a call at [phone number] or email me at [email address]. We’ll arrange a meeting convenient for you and provide the survey without cost or obligation.
Sincerely yours,
