Protecting Your Firm as an Additional Insured
In the course of doing business, you may sometimes find yourself entering into contracts requiring that your firm be named as an additional insured on another party's insurance policies.
This is often done to make sure that your own insurance is not depleted by defense and indemnification costs for losses for which you may be legally liable as a result of the business relationship you have with the other party, but that are not due to your own firm's direct negligence.
Definition: An individual or entity that is not automatically included as an insured under the policy of another, but for whom the named insured's policy provides a certain degree of protection.
When to Be an Additional Insured
There are many times when you may want your firm included as an additional insured on another's policy. Here are just a few examples:
- If you are a building owner, you want to be an additional insured on the property and general liability insurance of your tenants in case one of them damages your building or in case a visitor to the property is injured.
- If you are the owner or a contractor on a construction project, you want to be an additional insured on the general liability insurance of your contractors and subcontractors in case there is an injury to one of their employees.
- If you are a distributor or a retailer, you may want to be an additional insured on the insurance programs of the manufacturers of the products that you sell.
- If a contractor comes onto your property to perform work of any type, including erecting displays or maintenance or structural work, you will want to be named as an additional insured on their policy in case the display falls on someone, or someone is injured due to the work they are performing. You don't want to be held responsible for any dangers or injuries created by their work.
If you are to become an additional insured on another company's policy, confirm that the other party has indeed named your company as such with their insurance company.
You should ask for a copy of the policy that explicitly lists your company as an additional insured. You want to see a copy of the policy and the certificate of insurance, although the latter is not sufficient proof that your company has been added.
Additional insured status is effectively conferred through an additional insured endorsement to the other party's original insurance policy.
An endorsement serves as an amendment to the terms of the policy that is incorporated into the relevant insurance policy. These amendments can take the form of an endorsement that specifically names a particular additional insured, or a general endorsement that identifies some class of parties as additional insureds.
If there is a dispute about your company's status as an additional insured, you will want to have in hand not only the other party's certificate of insurance, but also a copy of the policy itself and the endorsement that makes your company an additional insured.
There are a few best practices that you can implement to help make certain your firm's status as an additional insured has been properly secured:
- At a minimum, always insist on receiving a copy of the relevant additional insured endorsement, as this is the instrument that establishes additional insured status;
- An additional insured endorsement does not, however, state an insurance policy's terms and conditions. In order to avoid being surprised by unexpected policy terms (such as strict notice requirement or unfavorable notice of cancellation provisions), you should ask for and receive a copy of the entire insurance policy under which you are an additional insured, and be sure to read it;
- Retain additional insured endorsements and the relevant insurance policies for as long as there is any potential that claims triggering those policies might be made.
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