How To Protect Your Business With Additional Insured Status
August 20, 2018
If a person or an entity is not included automatically in an insurance policy, the policyholder can add the individual or organization if necessary. Additional insured status protects another party that has a working relationship with the policyholder or performs services on the policyholder's behalf. Also, an additional insured party may be added as part of a contractual agreement. With liability issues, additional insured status is often used to indemnify one party.
Named Insured vs. Additional Insured
The main difference between the additional insured and named insured statuses is that a named insured party is listed specifically on the policy's declaration page. This means that the named insured party is part of the policy and is included directly in the main provisions, and the policy's coverage simply extends to the additional insured party in a more limited way. However, both are covered by the policy. While a named insured party has full protection, an additional insured endorsement does not prevent the added entity from having to maintain its own liability insurance. Named insureds are people or entities with insurable interests, and an additional insured is a party that has a clear working relationship with the policyholder. On the policy's declaration page, the first listed name is considered the first named insured.
Blanket Endorsement vs. Additional Insured Endorsement
While additional insureds and named insureds are specifically listed on the policy as individuals or entities, a blanket endorsement names a specific type of business or service instead of an entity. Since some types of companies work with multiple contractors and subcontractors every week or month, it is too much work to continually update an insurance policy with their specific information.
Types of Policies With an Additional Insured Option
The two common types of policies that additional insureds appear on are general liability and professional liability. In addition to having a working relationship with the policyholder, an additional insured must face a risk of lawsuits to be included on the company's insurance policy. If a party that works with another business or individual sees a significant risk of being sued, that entity usually requires this endorsement as part of the work agreement. This applies to each of the following types of coverage.
A common form of endorsement requirement for general liability insurance is property leasing. For example, the owner of a mall may require a tenant who leases a storefront to include her as an additional insured. A tenant has a duty to monitor the leased area and notify the landlord of any potential dangers. Imagine that the mall tenant ignores a dangerous condition that develops quickly in the store, and a customer suffers significant injuries from the hazard. The injured person may try to sue the mall owner and the tenant. If the mall owner is an additional insured on the tenant's insurance policy, she knows that the tenant will be responsible first for compensation.
Additional insured status is often requested when a client is exposed to potential law suits based on the work of the named insured. A good example of this would be a design error made by an Architect. A General Contractor who hires an Architect to design a house would typically require Additional Insured status on the Architect’s Professional Liability. That way, if the General Contractor is sued for a design error made by the Architect, the Architect’s Professional Liability Policy will defend and indemnify the General Contractor. The General Contractor’s own insurance policy would be used for allegations outside of the Architect’s scope of work, or if the Architect’s policy limits are exhausted.
Additional Insured Cost
In comparison with the policy's premium amount, it is inexpensive to add a named additional insured party. This is because underwriters see additional insureds as marginal risks.
Do I Need an Additional Insured Endorsement?
The most common example of an additional insured endorsement requirement is when a company requires a contractor to add its name to a general liability policy. However, the previous examples and several others may apply in some situations. To add an entity as an additional insured, you must contact your agent to help you make the necessary updates before any contracting parties will allow you to perform work for them.