Construction contracts routinely require contractors to provide specific insurance protections for owners, general contractors, and other upstream parties. Those obligations often extend beyond the primary general liability policy and apply throughout the entire liability program, including umbrella and excess liability policies.
As construction projects grow larger and catastrophic claims increasingly reach the excess layers, even minor differences in policy language can create uninsured exposures, contractual compliance issues, and significant balance sheet risk.
Brokers should never assume an excess policy labeled follow form automatically satisfies those contractual requirements. Contractors, like their brokers, should understand that every excess policy is a separate insurance contract with its own terms, conditions, exclusions, and limitations. Where those provisions differ from the underlying policy, the excess policy controls the coverage.
Those differences can also cascade throughout the liability tower, as each successive follow form policy may adopt the limitations of the layer beneath it.
Accordingly, contractors should verify their broker is reviewing every umbrella and excess policy to confirm that contractual risk transfer provisions remain intact throughout the entire liability program, rather than assuming the protections provided by the primary policy carry through the tower.
The following are some of the most common excess policy provisions and why they should be reviewed closely before binding coverage.
1. Additional Insured Status
Most follow form excess policies recognize additional insureds qualifying under the underlying policy. Brokers should nevertheless confirm that the excess policy does not narrow that coverage, impose additional qualification requirements, or require scheduled endorsements before recognizing additional insured status.
2. Other Insurance and Primary & Noncontributory Coverage
‘Additional insured’ status alone often does not satisfy construction contract requirements. A common gap arises in the excess policy's ‘Other Insurance’ provision, which may state that coverage is excess over any other collectible insurance unless that insurance was specifically written to apply excess of the policy. Without language preserving primary and noncontributory coverage when required by written contract, the excess insurer may contend its coverage is excess to the additional insured's own insurance.
Your broker should confirm that each excess layer either expressly provides primary and noncontributory coverage, or follows the underlying policy's primary and noncontributory provisions granting the required contractual protection.
3. Waiver of Subrogation
Construction contracts frequently require waivers of subrogation. Certain excess insurers preserve their right to recover against responsible third parties without recognizing contractual waivers contained in the underlying policy. Where required by contract, your broker should confirm that the excess policy either follows the underlying waiver or is specifically endorsed to provide it.
4. Defense Obligations
Often, construction contracts require defense obligations to be consistent with the primary policy. Although many excess policies assume the underlying insurer's defense obligations after exhaustion of the underlying limits, others reserve the right—but not the duty—to defend or provide defense only under limited circumstances. Brokers should verify that defense obligations remain consistent throughout the liability tower.
5. Advance Notice of Cancellation
Advance notice of policy cancellation to owners or other upstream parties is required by many construction contracts, yet most excess policies do not automatically extend those notice provisions. If notice is required throughout the liability program, the excess policies should be endorsed accordingly.
Blanket notice provisions are generally preferable for contractors with numerous projects because they eliminate the need to schedule each owner individually. However, some insurers provide notice only to entities specifically listed by endorsement.
6. Per-Project General Aggregate Limits
Per-project General Aggregate limits should never be assumed to carry into the excess program. Although the underlying general liability policy may apply aggregate limits separately to each project, follow form excess policies often do not. Your broker should review both the schedule of forms and endorsements, and the Limits section of each excess policy, to determine how aggregate limits apply. When construction contracts require per-project aggregate limits, the excess policy should expressly provide that aggregate limits apply in the same manner as the underlying insurance.
Their review should also confirm that the excess policy does not adversely restrict the number of per-project aggregates or the total aggregate limits available across multiple projects, as those limitations can significantly reduce available coverage and create contractual compliance issues.
7. Coverage Restrictions and Exclusions
Construction contracts frequently require contractors to maintain liability insurance that does not contain exclusions or other provisions that materially restrict coverage for the operations contemplated by the contract. Common prohibited exclusions include:
- XCU (Explosion, Collapse, and Underground Utilities)
- Residential construction
- Products-completed operations
- EIFS or exterior cladding
- Project-specific exclusions
- Residential high-rise construction
Because many excess insurers issue proprietary manuscript forms, your broker should review both the schedule of forms and endorsements and the policy wording to confirm that prohibited restrictions have not been introduced into the excess program.
Conclusion
The bottom line? The phrase follow form should never be treated as a substitute for careful policy review. Contractors who have verified that their excess liability program mirrors the contractual requirements of the underlying policy are better positioned to avoid uninsured liabilities, breach of contract allegations, and unnecessary balance sheet exposure.
About the Author
Nathan Baumgartner, CRIS, CPCU, is an Assustant Vice President with American Global, with deep expertise in primary and excess casualty lines. Having nearly 25 years’ experience in construction insurance Nate, leverages his extensive knowledge to support our service teams in identifying and recommending coverage terms, leading new and renewal account strategy, carrier negotiations and presenting proposals to clients and prospects.
