In construction insurance, risk transfer isn’t just a technicality. It’s a cornerstone of protecting all parties involved. For brokers and their clients, navigating indemnity agreements and additional insured requirements often feels like stepping into a legal maze.
We’re often asked by our retail and wholesale partners: “What do underwriters look for in a contract to ensure proper risk transfer?”
While we’re not attorneys and can’t provide legal advice, we work closely with our partners to spot potential gaps and guide them toward legal counsel experienced in this area.
Why?
Because state laws and anti-indemnity statutes can vary widely, getting state-specific advice is essential.
Here’s a high-level overview of how indemnity and additional insured requirements work together, and what underwriters typically evaluate. (If I got into the nitty gritty, we’d be here for a long time!)
The Hierarchy of Risk Transfer
Risk in construction projects tends to flow downstream. Each party seeks to shift exposure to those performing work:
- Project Owner
- Owner’s Agents – Construction Managers, Engineers, Architects
- General Contractor (GC)
- Subcontractor
- Subcontractor of Subcontractor
This hierarchy relies on well-constructed contracts and adequate insurance coverage to function as intended.
"Risk transfer isn’t just a technicality. It’s the cornerstone of protecting your clients in construction insurance."
Understanding Indemnity Agreements
An indemnity agreement is a contract where one party (the indemnitor) assumes responsibility for potential losses, defending and holding harmless another party (the indemnitee).
But indemnity provisions aren’t one-size-fits-all:
- Some states prohibit indemnity agreements that attempt to transfer a party’s sole negligence.
- Others allow broader indemnity, particularly where older ISO AI endorsements (like CG 20 10 11/85*) are in place – a situation often referred to as the “additional insured loophole.”
*Or its equivalent, such as CG 20 10 10/01 and CG 20 37 10/1 AI forms.
Why Additional Insured Coverage Matters
AI endorsements complement indemnity provisions by extending coverage to upstream parties. Common forms underwriters look for include:
- CG 20 10 11/85 – Broad, may cover sole negligence of the additional insured. Ongoing ops and completed ops all on one form.
- CG 20 10 10/01 and CG 20 37 10/01 – Broad, may cover sole negligence of the additional insured but broken out in two forms instead of condensed into one, like the CG 20 10 11/85.
- Later editions (CG 20 10 and CG 20 37 07/04) – More restrictive, often limited to shared negligence.
The choice of form—and how it interacts with the indemnity agreement and local case law—can have a significant impact when claims arise.
"Knowing which additional insured forms apply—and how they interact with indemnity language—can make all the difference when a claim hits."
Action Over Claims: A Hidden Exposure
Part of the risk transfer world is action over lawsuits, which present a unique risk in construction:
- A subcontractor’s employee is injured and collects workers’ compensation (WC) from their employer.
- The employee then sues a third party (often the GC or project owner), alleging unsafe work conditions.
- The GC or owner tenders the claim back to the employer/subcontractor under indemnity and AI provisions.
Because this tort liability is indirect via an indemnification obligation, it can bypass WC exclusivity and result in a general liability (GL) loss for the subcontractor (i.e., the employer of the injured worker); this is the action over part. Strong contracts and vigilant monitoring are critical to mitigating this exposure.
What Underwriters Look For
When evaluating contracts and additional insured requirements, we focus on these key elements:
✅ Insurance Limits
- General Liability: Minimum $1M per occurrence / $2M aggregate
- Auto Liability: At least $1M CSL
- Workers’ Comp & Employers Liability: Minimum $500K
- Umbrella/Excess: Minimum $5M (can vary by project)
✅ Contract Language
- Use of ISO CGL form, typically CG 00 01
- AI coverage with CG 20 10 11/85 (or an equivalent form*)
- Waiver of Subrogation
- Hold Harmless, Indemnification and Primary & Non-Contributory language
✅ Certificate Monitoring
- Require subcontractors to provide certificates of insurance.
- Ensure coverage is active, and upstream parties are properly named as additional insureds.
*The AI coverage is often negotiated to CG 20 10 and CG 20 37 10/01 editions, which could also extend the sole negligence of the additional insured, depending on the underlying facts and applicable case law.
The Bottom Line: Strong Contracts Mean Strong Protection
Risk transfer in construction is complex, and no two projects are alike. By understanding the interplay between indemnity agreements, additional insured endorsements and jurisdictional nuances, brokers can help their clients structure contracts that truly protect them.
We encourage all parties to seek legal counsel with expertise in construction contracts, and to partner with carriers who know what to look for.
