Denial of coverage based on contractor’s failure to comply with a subcontractor warranty endorsement in the Commercial General Liability insurance policy. Baudoin v. American Glass & Mirror Works, Inc. Court of Appeal of Louisiana (2022), by Hugh Anderson

Summary: A subcontractor warranty endorsement (also known by various other names, such as “Subcontractor Endorsement” or “Contractor’s Special Conditions”) is a supplement to a general contractor’s commercial general liability (CGL) policy that lists risk-transfer requirements that the insured contractor must meet in its subcontracts. The endorsements sometimes impose harsh consequences, such as nullification of insurance coverage, on general contractors that fail to comply with the endorsement requirements.

Such was the case on a bridge project in Louisiana. The general contractor, Charles Goudeau General Contractor, was required by a subcontractor endorsement, as a condition precedent to insurance coverage, to obtain an indemnity from each subcontractor; obtain certificates of insurance naming Goudeau as an additional insured under the subcontractor’s policy; obtain proof the subcontractor carries worker’s compensation insurance; and obtain proof of required licensing. The endorsement also required the contractor/insured to maintain thorough records of compliance with the endorsement requirements.
When a subcontractor employee was injured on the jobsite, Goudeau’s CGL carrier contended that Goudeau had failed to collect the required records (and in particular the Additional Insured status had not occurred). Because a condition precedent had not occurred, the general contractor’s CGL carried denied coverage.

Decision: The Court of Appeal affirmed the trial court’s decision that there was no coverage because of the failure to comply with the subcontract endorsement. “Absent a conflict with statutory provisions or public policy, insurers are entitled to limit their liability and to impose and enforce reasonable conditions on the policy obligations they contractually assume.”

Comment: An IRMI (International Risk Management Institute) article about the Baudoin/Goudeau case provides sound advice to contractors regarding such endorsements:
Contractors and their insurance representatives should be on the alert for this type of endorsement and ensure that all requirements are fair and feasible and that penalties for noncompliance are equitable. For example, instead of a complete bar of coverage, a more reasonable penalty would be paying a higher rate on the value of noncompliant subcontracts.

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