Documenting Subcontractor Risk Transfer for Ongoing and Completed Operations

Additional insured status gives the developer or GC direct rights under the subcontractor's policy. Insurers commonly use separate endorsements for ongoing operations and completed operations, and many blanket endorsements extend additional insured status only while the work is in progress. A subcontract that asks only for additional insured status, without naming completed operations and a duration, may leave the upstream party without rights once the work is turned over.

Read each endorsement for three things: who qualifies (a named entity, or any party the named insured agreed in writing to add), what triggers coverage (often liability caused in whole or in part by the subcontractor's acts or omissions) and how long completed operations status lasts. Some endorsements also cap the additional insured's limits at the lesser of the policy limits or what the contract requires. If the subcontract does not state a limit or duration, the endorsement may supply its own.

A waiver of subrogation stops the subcontractor's insurer from suing the developer or GC to recover what it paid. Primary and noncontributory wording asks the subcontractor's policy to pay first for the additional insured, without seeking contribution from the upstream party's own policy. Both normally require an endorsement on the subcontractor's policy; the subcontract alone may not bind the insurer.

Ask for the waiver on each line the subcontract names, which may include general liability, auto, workers' compensation and umbrella or excess. Then confirm the subcontractor's umbrella or excess policy also treats the developer or GC as an insured on a primary and noncontributory basis, because some excess forms do not follow the underlying additional insured terms.

In California, Civil Code §2782 voids indemnity for the promisee's sole negligence or willful misconduct. For residential construction contracts after January 1, 2009, §2782(d) makes subcontractor indemnity for construction defect claims unenforceable to the extent they arise from the builder's or GC's negligence or fall outside the subcontractor's written scope, and §2782(e) says the subcontractor owes no defense or indemnity until it receives a written tender with the claimant's information. For many commercial contracts on or after January 1, 2013, §2782.05 limits indemnity for the GC's active negligence; it expressly does not apply to wrap-ups or to requirements to buy insurance, including additional insured endorsements for ongoing and completed operations.

In Texas, Insurance Code §151.102 voids indemnity to the extent it covers the indemnitee's own negligence, with an exception in §151.103 for claims by the indemnitor's employees. Section 151.104 voids additional insured requirements to the same extent, and §151.151 bars waiving the chapter. Section 151.105 excludes single-family, townhouse and duplex work and municipal public works. In Arizona, A.R.S. §32-1159 voids indemnity for the promisee's sole negligence in private construction contracts. In Nevada, NRS 40.693 voids certain indemnity provisions in residential construction contracts and makes an additional insured pursue that coverage before suing a subcontractor for defense costs.

The practical result is that a single national subcontract form rarely fits all four states. Counsel should tailor the indemnity and insurance exhibits to each state and project type.

Many GC and developer liability policies include a subcontractor condition. It may require written subcontracts with hold harmless language, additional insured status for ongoing and completed operations and minimum limits before a subcontractor starts work. If a subcontractor's file is incomplete when a claim arises from its work, the carrier may deny or limit coverage for that claim.

That turns document collection into a coverage requirement, not just a contract formality. Build a start-of-work gate: no mobilization until the signed subcontract, the endorsements and current certificates are in the file and match what both the subcontract and your own policy condition require.

A defect claim can arrive years after the subcontractor has left the job or gone out of business. When it does, the GC's ability to tender to the subcontractor and its insurer depends on producing the subcontract, the endorsements in force during the work and proof of the completed operations term. Keep those records at least as long as the repose period for the project's state and work type, which runs as long as 10 years after substantial completion for latent deficiencies in California.

Store the file by project and by subcontractor, include each renewal's endorsements and keep proof of the substantial completion date. A clean file is often what makes a tender succeed.