It is common among parties to sophisticated construction projects, service agreements, leases and many other types of projects and transactions to assess the risks associated with their contractual activities and allocate those risks through a combination of contractual indemnification provisions and insurance requirements. In the construction setting, for example, project owners, general contractors and developers (“upstream” parties) typically require their subcontractors and sub-subcontractors (“downstream” parties) to indemnify them for claims arising from the contract work.

In addition to the contractual indemnification provisions, upstream parties frequently require that they be provided with “additional insured” status on the downstream indemnitor’s or named insured’s general liability insurance policy.

This provides a number of benefits to the upstream indemnitee. It effectively gives the additional insured or indemnitee direct coverage rights under the indemnitor’s insurance policy, preserves the indemnitee’s own liability coverage and may protect the indemnitee in the event the contractual indemnification provision in the parties’ contract is determined to be void and unenforceable.

Originally published in Law360 on June 14, 2013.