Joint Ventures: Possible Coverage Gap?

Due to the economy and other contractual issues, there has been a rise in the use of joint ventures (JV). This has allowed contractors to expand their traditional markets and preserve bonding capacity for other projects. In most cases the joint venture will have its own insurance program in place, but if the limits are inadequate the JV's participants are responsible for additional liabilities. Usually the contractor with the deeper pockets will be called upon to foot the bill (claim).

The standard commercial general liability (CGL) policy provides no coverage with respect to joint ventures that are not listed on the policy; therefore, JV participants will have no coverage under their own policies for liabilities arising out of the JV unless they take proactive steps to include all current and past joint ventures as insureds on the policy. To avoid the possibility of oversights that can produce coverage gaps, contractors can request a blanket joint venture coverage endorsement that provides coverage on an excess basis over policies written specifically for the joint venture. In this way, the contractor receives the full benefit of the coverage provided by the joint venture and also has protection under its own policy after the JV's coverage expires or is exhausted by claims.

Note that the coverage granted by this endorsement applies only to the named insured contractor; neither the joint venture itself nor other participants have coverage under the named insured contractor's policy. However, to reduce the possibility that this policy becomes the sole source of recovery for a claim, the JV agreement should require the other participants to also arrange joint venture coverage on their CGL policies.