Historically, developers and GCs
would require Acord forms to ensure that a subcontractor had a CGL insurance
policy, with sufficient limits, and which named them as additional insureds.
More recently, developers and GCs took the additional step of requiring a
confirmation on the Acord forms that they were named as additional insureds for
both ongoing and completed operations. This is important because coverage for
ongoing operations only provides coverage during the construction process. Once
the homes are put to their intended use, developers and GCs must be named as
additional insureds for completed operations also in order to avail themselves
of the benefits of the policy. Unfortunately, this is where the evolution of
the use of the Acord forms ended, resulting in a failure to provide sufficient
information to protect developers and GCs from the unknown.
My firm has had a rash of recent
experience where our clients have not obtained the benefit of additional
insured coverage for which they bargained because they relied on Acord forms
which failed to provide sufficient information to allow them to protect
themselves from insufficient insurance coverage on the part of the
subcontractors with which they did business. For example, in one recent case a
homeowners association alleged insufficient grading and drainage away from the
homes within a development built by one of our clients. In reviewing the
insurance information from the construction files, we found the Acord forms
from the excavating company that performed all of the grading work around the
homes. To our delight, the Acord form listed our client as an additional
insured for both ongoing and completed operations. We timely tendered our
client’s defense to the excavating subcontractor’s carrier as an additional
insured, only to have our client’s defense declined because the excavating
subcontractor had an earth movement exclusion on its policy. This exclusion was
not disclosed on the Acord form provided.
Unfortunately, information
related to exclusions or endorsements are rarely included on Acord forms even
though they can have a very negative impact on the insurance a developer or GC
thought it was obtaining through its subcontractors. We have seen other
examples where carriers have denied tenders of defense and indemnity because of
unknown exclusions in policies, such as a roofer that had a residential
exclusion, an EIFS installer that had EIFS and mold exclusions, and a framing
subcontractor that had a construction defect exclusion.
In order to protect our clients
from the unknown, we recommend that in addition to requiring and maintaining Acord
forms from their subcontractors, they require their subcontractors’ insurance
agents to complete, sign, and return subcontractor insurance compliance forms. These
forms have been developed to get additional information regarding the pertinent
exclusions and endorsements on the subcontractors’ insurance policies and to
ensure that developers and GCs know, for example, whether their excavating
subcontractor has an earth movement exclusion. In addition to the benefit of
being able to make sure subcontractors have adequate insurance coverage for the
work they are performing, use of these forms also provides an additional source
of recovery if it is later discovered that the insurance agent misrepresented
the subcontractor’s insurance coverage. If it did, and there is no insurance
available to cover a risk, there is a claim against the insurance agent for
negligent misrepresentation, which may be covered by his or her errors and
omissions policy.
Having never been responsible for
obtaining and maintaining Acord insurance forms myself, I can only imagine what
a Herculean task it must be to keep track of them for every project, through
the statute of repose. (Someone is doing this at your company, right? If not,
someone should.) Unfortunately, the use of subcontractor insurance compliance
forms only increases the work required to track insurance, and for that I
apologize. Based on experience, though, the effort is worth the reward. Not
only will your subcontractors have the insurance needed to protect them, and
you, from the risk of a construction defect claim down the road, you will avoid
having any unwelcomed surprised in the event such a claim arises.

- David M.
McLain is a founding member of Higgins, Hopkins, McLain & Roswell, LLC, a
firm highly regarded for its expertise in construction law and the litigation
of construction claims. HHMR represents a wide variety of clients, from
individuals to small businesses to Fortune 500 companies. For additional information regarding the Acord Insurance Forms, you can
reach David McLain by e-mail at mclain@hhmrlaw.com
or by telephone at (303) 987-9813.
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