3 Exciting Construction Risk Endorsements

Author: Chris Boggs

Describing any insurance endorsement as exciting may seem like hyperbole; but for agents who work with construction clients, Insurance Services Office's (ISO's) introduction of two automatic additional insured completed operations endorsements and an automatic waiver of subrogation endorsement is nothing short of exciting; maybe even life changing. OK, that's hyperbole.

With a 12/19 edition date, ISO filed:

CG 20 39 12 19 - Additional Insured – Owners, Lessees Or Contractors – Automatic Status When Required In Written Construction Agreement With You (Completed Operations);
CG 20 40 12 19 - Additional Insured – Owners, Lessees Or Contractors – Automatic Status For Other Parties When Required In Written Construction Agreement (Completed Operations); and
CG 24 53 12 19 - Waiver Of Transfer Of Rights Of Recovery Against Others To Us (Waiver Of Subrogation) – Automatic

The CG 20 39

ISO's CG 20 39 - Additional Insured – Owners, Lessees Or Contractors – Automatic Status When Required In Written Construction Agreement With You (Completed Operations) automatically extends additional insured (AI) status to the party requiring AI status in a written construction agreement. The most exciting part of this new endorsement is that the CG 20 39 extends AI status for completed operations. When considering or using this endorsement, remember these keys:

The endorsement is triggered only when there is a written contract or agreement;
Additional insured status is limited to the party with “privity of contract." This essentially means that only the party in the first paragraph is extended AI status. Assume the contract reads, “This contract contains the entire agreement between ABC, Inc. as general contractor and XYZ, Inc. as subcontractor…." The requirement of “privity of contract" limits AI status to ABC, Inc. even if the contract states on page thee that a whole list of entities must also be extended AI status;
Use this endorsement with the CG 20 33; these endorsements are designed to work together. If the CG 20 38 and CG 20 39 are combined, the breadth of entities extended protection as an AI is different and could result in an errors and omissions situation; and
This should NEVER be referred to as a “Blanket" endorsement. Saying any AI form is “blanket" is tantamount to using an insurance cuss word.

The CG 20 40

ISO rounded out its automatic additional insured library for construction risks with the introduction of the CG 20 40 12 19 - Additional Insured – Owners, Lessees Or Contractors – Automatic Status For Other Parties When Required In Written Construction Agreement (Completed Operations). Like the CG 20 39 introduced previously, the CG 20 40 automatically extends AI status for completed operations losses to entities as required by the written contract or agreement. However, the CG 20 40 does NOT have the “privity of contract" limitation of the CG 20 39.

Removal of the “privity of contract" limitation allows AI status to extend to all parties requiring such protection as per the contract. Further, there is no limitation on the number of entities that can be extended AI protection. If the contract requires AI status, the entity named has protection as an AI; but only to the breadth provided by the endorsement.

When considering or using this endorsement, remember:

The endorsement is triggered only when there is a written contract or agreement;
Use this endorsement with the CG 20 38. The CG 20 38 and CG 20 40 are designed to work together. If the CG 20 33 and CG 20 40 are combined, the breadth of entities extended protection as an AI is different and could result in an errors and omissions situation; and
This should NEVER be referred to as a “Blanket" endorsement. Saying any AI form is “blanket" is tantamount to using an insurance cuss word. I know this is a repeat, but I don't want you to forget this.

An Automatic Waiver of Subrogation – The CG 24 53

“Why is it possible to automatically extend additional insured status when required by a contract but can't automatically extend a waiver of subrogation? Nearly every contract requires a waiver."

ISO heard this question more than once. In fact, it is easy to imagine they heard it dozens and dozens of times.

Credit ISO with listening to the industry. In response to this question, ISO introduced the CG 24 53 12 19 - Waiver Of Transfer Of Rights Of Recovery Against Others To Us (Waiver Of Subrogation) – Automatic. As the title suggests, the endorsement makes the waiver of subrogation automatic when it is required by contract. The endorsement:

Requires a written contract or agreement; and
Requires the insured to waive its rights of recovery in the contract before a loss occurs.

Anyone who knows me or has read my articles knows I do not like the term “waiver of subrogation" as it relates to this endorsement and the CG 24 04 (the scheduled entity endorsement). Both are “waivers of rights of recovery against others" endorsements. However, I will not get on that soap box right now, just remember that “waiver of subrogation" is another on one of those insurance cuss words.

Exciting Times for Construction Clients

With these three endorsements, ISO addressed two key issues agents have faced for years: 1) the inability to automatically extend AI status for completed operations; and 2) the ability to waive rights of recovery without the need to attach individual endorsements. Although there shall remain contractual insurance and COI requirements that cannot be met, these endorsements aid in the ongoing battle with upper tier contractors and their risk managers and/or lawyers. It's rare I say thank you to ISO, but “Thank you, ISO."

However, isn't there always a “however" in insurance, just because these endorsements exist does not mean you can use them. First, the carriers must adopt them; then underwriting guidelines must be written; and lastly, the underwriter must be comfortable with allowing their use.

Even with the “however," these are exciting times for construction-focused agents. OK, back to hyperbole.

Last Updated: October 25, 2019