In the trades, what is an AI (additional insured) and why is it important?
In the context of trades contractors, an Additional Insured (AI) is an individual or entity (often a client or another contractor) added to a contractor’s insurance policy. This designation extends coverage to the additional insured for claims arising from the contractor’s work or operations, meaning the AI is protected under the contractor’s policy in the event of certain claims.
Why Additional Insured Status is Important
Risk Transfer:
By being named as an AI, clients or general contractors can transfer some of the liability associated with a subcontractor’s work back to the subcontractor. If an incident occurs that leads to a claim, the AI status ensures that the subcontractor’s insurance will respond to defend and indemnify the additional insured.
Minimizing Legal Exposure:
AIs receive legal protection and financial coverage if they are named in a lawsuit related to the contractor’s work. For instance, if a subcontractor’s faulty installation leads to property damage, the client or general contractor (as an AI) is protected under the subcontractor’s policy, shielding them from having to rely on their own insurance.
Meeting Contractual Requirements:
Many contracts between general contractors and subcontractors (or between owners and contractors) stipulate AI status as a requirement. It’s often mandatory to be listed as an AI, particularly for large projects or clients with substantial liability concerns.
Enhanced Trust and Professionalism:
When contractors add clients or other entities as AIs, it shows a commitment to transparency and risk management. This fosters a sense of trust, as it demonstrates that the contractor acknowledges and accepts responsibility for their work and its potential impact.
Types of Additional Insured Endorsements
Ongoing Operations:
Covers the AI for claims arising during the actual work process but excludes claims from completed operations. For example, if an accident occurs while a contractor is installing plumbing, the AI would be covered.
Completed Operations:
Provides coverage for claims arising from completed work, essential in cases where issues appear after the job is finished (like a roof leak from improper installation). This type of endorsement is critical for projects where long-term liability is a concern.
Per-Project Aggregate:
Some policies offer a “per-project” aggregate limit, ensuring each project’s coverage limits are distinct and not shared across multiple jobs. This is particularly important for general contractors who work with multiple subcontractors on various projects, reducing the risk of shared limits being exhausted.
Common Issues to Watch For
Policy Language and Limitations:
Not all AI endorsements are created equal. Some may restrict coverage significantly, particularly around completed operations. Understanding the language of the endorsement is key to ensure it aligns with the project’s needs.
Subrogation Concerns:
An AI endorsement may include a waiver of subrogation, which prevents the insurer from seeking reimbursement from the additional insured. This is typically desirable for AIs but can be a point of negotiation.
Cost Implications:
Adding an AI can increase the policy cost, and contractors should be mindful of how many AIs they add. However, the cost is often outweighed by the benefits, especially when it’s a contractual requirement.
In trades contracting, AI status is essential for managing risk and maintaining strong professional relationships. It provides financial security to both the contractor and the client, fostering a cooperative approach to managing potential liabilities.