Before Contracting, Review Your Contractors' Insurance Policies and Don't Rely Upon the Insurance Certificate/Accord.
Part of being a responsible developer is ensuring you are insured. Many developers are familiar with the term “additional insured,” because their form contract drafted years ago requires that the general contractor (the “named insured") identify the developer as an additional insured under the contractor policy. Developer’s rarely look at the actual policy, relying upon the general contractor’s Certificate/Accord and, therefore, believing they have the same coverage as the general contractor. This is a mistake.
More and more insurance policies now provide different coverage for the additional insured than the named insured, depending on what the underlying construction contract provides. For example, even though the named insured may have insurance for post-construction property damage resulting from defective work, the additional insured will not have such coverage unless “the written contract or written agreement requires you [the named insured] to provide the additional insured such coverage.” Without this coverage, the developer could be denied the benefit of a defense (lawyers paid for by the insurance company) and indemnification (insurance company pays judgment or settlement up to policy limits) in an action against the developer by purchasers for construction defects and property damage.
Therefore, for developers building condominiums or any project that may have risk associated with “tail litigation” related to property damage (such as water intrusion), the best practice is to obtain and review your contractors’ policies prior to execution, so that the construction contract can be modified to trigger as much coverage as possible.
