General Contractors (GC) have gotten into a bad habit of automatically requiring their Subcontractors to add the General Contractor as an Additional Insured on the Subcontractor's Commercial General Liability insurance policy without regard to the negative consequences.
Additional Insured Endorsements are intended to protect the General Contractor from being sued by their Subcontractors for faulty workmanship and liable occurrences that arise out the course of a job. The way it works is as follows: you are not allowed to file suit against a person or entity listed on an insurance policy where you are the Named/Primary Insured. It would be like a husband suing his wife under their Homeowners Policy for slipping in the kitchen after the wife mopped the tile floor. Because they are married and considered to be equal owners in the insured property, they are both considered Named Insureds no matter which is listed as the Primary Insured. One cannot sue the other for liable or any other reason, for that matter.
Additional Insured Endorsements on Commercial General Liability policies work the same. The General Contractor cannot file suit against the Subcontractor and the Subcontractor cannot file suite against the General Contractor, as well. Where this gets complicated is when the Subcontractor is doing work for more than one General Contractor and is listing all the General Contractors on his Commercial General Liability policy. A broad example of how this could negatively affect a General Contractor is as follows: the Subcontractor does work for GC1 and is found liable for damages to the job's property owner who contracted the work with GC1.
The lawyer for the property owner discovers that the Subcontractor has GC2 listed on his Commercial General Liability policy as an Additional Insured. Tort law will allow the property owner's lawyer to file suit against all entities listed on the liable party's Commercial General Liability policy, this case, the Subcontractor, GC1 and GC2. The GC2, who has no interest in the contracted work for which the claims was brought against, could be named as a defendant in the lawsuit solely because he was listed on the liable party's insurance policy. Therefore, GC2 will have his Commercial General Liability insurance carrier represent him in this instance, unless, he is willing to hire his own representation and pay the cost out of his pocket. The GC2 will have lost productive time giving depositions and possibly attend any trial proceedings, depending on the circumstances. This is an Economic Cost that the GC2 will not be able to make up or recoup from the Subcontractor or GC1.
Insurance carriers understand the need for the Adina Insured Endorsement from the stand point of protecting their insureds from liable actions of their Subcontractors. However, General Contractors are not properly informed of how to effectively utilize the Endorsement and if they are informed, they usually feel it is more upfront work/cost to have the proper documentation drawn up then the cost they will experience if the above mentioned scenario arises.