1. Forms
2. CG
3. CG-20-38

Additional Insured - Owners, Lessees Or Contractors - Automatic Status For Other Parties When Required In Written Construction Agreement (CG 20 38)

The CG 20 38 endorsement is a crucial component of a Commercial General Liability (CGL) policy, particularly within the construction industry. Its primary purpose is to automatically grant additional insured status to parties not directly contracted by the named insured, provided a written construction agreement mandates this coverage for those parties. This endorsement is designed to address situations where "upstream parties" (like project owners or general contractors) require additional insured status from subcontractors, even if no direct contract exists between the subcontractor and the upstream party. The CG 20 38 extends coverage to any person or organization the named insured is performing operations for, when a written agreement dictates they be added as an additional insured, and to any other person or organization the named insured is required to add as an additional insured under that same agreement.

Classes of Business It Applies To

This endorsement is predominantly used in the construction industry due to the complex contractual chains involved. Here are some real-world examples:

• A subcontractor (named insured) enters into a contract with a general contractor. The contract requires the subcontractor to name both the general contractor and the project owner as additional insureds. Even though the subcontractor doesn't have a direct contract with the project owner, the CG 20 38 would extend additional insured status to the project owner if required by the subcontractor's agreement with the general contractor.
• In large-scale development projects, multiple tiers of subcontractors may be involved. A lower-tier subcontractor might be required by their contract with a mid-tier subcontractor to name the ultimate project owner and general contractor as additional insureds. The CG 20 38 helps fulfill these "upstream" contractual requirements.
• Landlords undertaking build-outs for tenants often require their tenants, and consequently the tenant's contractors, to name the landlord as an additional insured. If the tenant's contract with their general contractor mandates this, the CG 20 38 on the general contractor's policy can provide the landlord with additional insured status, even without a direct contract between the landlord and the general contractor.

Special Considerations

There are several important factors to keep in mind when utilizing or encountering the CG 20 38:

• Written Construction Agreement is Key: The existence of a written construction agreement requiring the additional insured status is paramount for this endorsement to trigger. Without this written requirement, the automatic status will not apply.
• Ongoing Operations Only: This endorsement typically provides coverage for the additional insured's liability arising out of the named insured's "ongoing operations." It generally does not provide coverage for "completed operations." For completed operations coverage, a separate endorsement like the CG 20 37 or CG 20 40 would be necessary.
• Privity of Contract: The CG 20 38 is specifically designed to address situations where direct contractual privity might be lacking between the named insured and an upstream party requiring AI status. This is a key distinction from an endorsement like the CG 20 33, which may be interpreted more narrowly to require a direct contract between the named insured and the additional insured.
• "Performing Operations For": A crucial condition is that the named insured must be "performing operations for" the party with whom they have the written agreement. If, for example, a subcontractor is required to name a lender as an additional insured, but the subcontractor isn't performing operations directly for that lender, the CG 20 38 might not provide adequate coverage for the lender.
• Limits of Insurance: The coverage afforded to the additional insured under this endorsement may be limited to the lesser of the amount required by the contract or the policy's applicable limits. Furthermore, the endorsement often states that the insurance provided will not be broader than what is required by the contract.
• State Variations: While the form is widely applicable, the acceptance and interpretation of ISO endorsements can sometimes vary by state, or insurers may use their own manuscript endorsements.

Key Information for Agents and Underwriters

Agents and underwriters should pay close attention to the following when dealing with the CG 20 38:

• Risk Assessment: The primary risk is the extension of coverage to parties over whom the named insured (and the insurer) may have less direct control or knowledge. Underwriters need to assess the types of upstream parties that might be included and the nature of the construction projects involved.
• Contractual Review: It's essential to understand the contractual obligations of the named insured. Agents should advise clients to carefully review their construction agreements to ensure the insurance provided aligns with the requirements. Underwriters may want to understand the typical contractual flow-down of insurance requirements.
• Potential for Broad Coverage: The "any other person or organization" language can significantly broaden the scope of who qualifies as an additional insured. This requires careful consideration of potential exposures.
• Pricing: While some view additional insured endorsements as having a relatively low direct cost compared to the overall premium, the broadened coverage under CG 20 38 can represent a significant increase in potential exposure, which should be factored into the overall underwriting and pricing of the CGL policy.
• Coverage Gaps: The most significant gap is the lack of completed operations coverage. Agents must ensure clients understand this and secure appropriate endorsements (e.g., CG 20 37 or the automatic CG 20 40) if such coverage is required contractually or desired. Also, professional liability exposures are typically excluded.
• Clarity in Certificates of Insurance (COIs): While a COI might indicate additional insured status, it's the policy endorsement itself that dictates coverage. Agents should ensure COIs accurately reflect the coverage provided by the CG 20 38 and any other relevant endorsements. It is crucial to receive and review the actual endorsement.
• Comparison with CG 20 33: The CG 20 38 is broader than the CG 20 33 in its ability to cover upstream parties without direct contractual privity. Understanding this distinction is vital when determining the appropriate endorsement for a given situation. If a contract requires naming parties with whom the insured does not have a direct contract, CG 20 38 is often the more appropriate choice.

In summary, the CG 20 38 endorsement plays a vital role in risk transfer within construction contracts by automatically extending additional insured status to contractually required upstream parties, even without direct privity. However, its focus on ongoing operations and the necessity of a written agreement are critical limitations that insurance professionals must clearly understand and communicate.