Be Wary of Requests for Additional Insurance
GCs and clients are more frequently requesting integrators to add them as ‘additional insured’ to their own insurance policy.
It is becoming more common for General Contractors, developers and even some clients, especially on projects like MDUs, to request integrators to have an “additional insured” provision in their agreement, or even sign a separate GC contract designating the dealers’ insurance extends to them. In both situations, there is potential liability that could have severe consequences for an integrator who is providing ongoing service or monitoring.
According to legal expert Ken Kirschenbaum of Kirschenbaum & Kirschenbaum and a columnist for CE Pro’s sister publication Security Sales & Integration, these additional insured provisions are fine if you are just doing installation work, but can be financially devastating if you are signing service or alarm monitoring agreements with either the developer or clients in individual units.
“The additional insured provision is one of the more potent provisions used to allocate and shift liability,” says Kirschenbaum. He says the traditional response for an integration company would be to say no, noting that your insurance policy is not meant to cover the client, but your own business.
Kirschenbaum explains that one other problematic situation that could arise is when the GC or client requests the integrator to name an “additional insured” in their contract and the dealer doesn’t do it.
“That’s a breach of contract, and more than likely, a non-curable breach,” he says. The result is that the client can terminate the contract and stop paying.
“Failing to obtain the insurance is also likely to expose you to the liability that the policy might have covered. In other words, you just became the insurance company,” he comments.
Also, Kirschenbaum points out that the request for “additional insured coverage” can be nebulous. The assumption is that the client and whoever else has been named as “additional insured” will be covered under the dealer’s insurance policy and therefore do not have any more coverage or rights than the integrator does as the primary insured entity.
“But it doesn’t always work out this way because of the way the demand for additional insured is written. The demand for additional insured coverage might require your policy to be ‘primary and non-contributory’; it might demand that your policy be first in line to cover a loss on the property even if you aren’t the cause of the loss and did nothing wrong. In this case your policy becomes the primary insurance for the subscriber no matter who is to blame. This kind of coverage would not be typical, but it’s something you, your insurance broker and carrier should be careful to avoid if not reject out of hand,” he advises.
“Keep in mind that you may want to name your subscriber and others as additional insured on your policy even if there is no request to name them as additional insured. In fact, you should name any party as an additional insured if you have agreed to indemnify them. Your insurance needs to back up your indemnity, and you should seek to limit your indemnity to your insurance coverage.
What Should You Do If ‘Additional Insured’ Is Requested?
Kirschenbaum notes that demand for additional insured status and for indemnity is becoming more common. He says it is natural that the integrator does not want to walk away from potential business, but also should not risk losing their entire company due to a loss, risk losing insurance coverage, or risk increased premiums by agreeing to cover a client as an additional insured entity.
Kirschenbaum advises integrators to go ahead and agree to include clients as “additional insured” if you are just doing the installation and you have clearly outlined the scope of work.
“But after-installation services of any kind, such as monitoring, repair service, inspection, have much different exposure and you should not be signing any general contractor or owner or subscriber form agreement, and you should not be providing any indemnity or additional insured coverage,” he says.
“If you have a subscriber who insists on indemnity and additional insured status for RMR services [after-install services], I suggest you counter with an offer to obtain a separate policy for you and the subscriber, limit your indemnity to that policy and require the subscriber to pay your cost of the policy.”
