When you are negotiating a contract for services or a lease of premises, and the contract requires you to add an entity as an additional named insured or an additional insured, you must determine and understand whether or not to give these privileges to the requesting entity.
While there is no limit to the number of named insureds you can have on an insurance policy, businesses should recognize that there must be a reasonably close relationship to those entities in terms of ownership, management and operations.
“You don’t want to readily add any entity as a named insured, as this could allow full rights and access to the policy coverage and limits, which may not be the intent,” says Phil Coyne, vice president with ECBM Insurance Brokers and Consultants.
Smart Business spoke with Coyne about how employers can solve the named insured puzzle.
What importance comes with being a named insured?
There are three levels of who is an insured; named insured, additional insured and insured. The named insured has two levels: the first named insured and all other additional named insureds. The policy language is very specific about rights and responsibilities of the first named insured. That entity has the right to make changes to the policy, request cancellation, receive cancellation or nonrenewal notices, add additional entities and receive a copy of the policy.
The first named insured has the responsibility of paying the premium, and failure of the first named insured to pay the premium or ensure that the premium has been paid can result in the policy being cancelled, jeopardizing coverage for the other named insureds.
How can the question of who is a named insured create problems?
Because named insureds have full access to policy coverage and limits, unintentionally adding entities as named insureds has the potential to reduce or jeopardize coverage for the original named insured.
Consider a lease of premises in which the lease requires the tenant to add the landlord as a named insured. If the lease is not amended and the landlord is added as a named insured then, at the time of an incident, the landlord would have full access to the tenant’s policy even though the tenant may not be responsible for the incident.
This can also be true if the lease requires the tenant to be listed as a named insured versus an additional insured.
If an entity is not careful or diligent with the adding of additional named insureds versus additional insured, it may be unintentionally providing coverage for operations of the entity that is requesting to be added under its policy, thus eroding coverage for the first named insured.
When entering into a contract that requires the adding of entities as additional named insureds, versus additional insureds, you need to understand the relationship between the parties and how these requests can affect your coverage. A business needs to understand its contract: who the entity is, its relationship in that contract and its relationship to the business.
My suggestion is to make sure the entity is added as ‘additional insured,’ not ‘additional named insured,’ unless the intent is to provide full coverage and access to the entity being added.
