An additional insured endorsement is an amendment to the named insured’s policy, usually the general liability policy, that extends coverage under the terms of the policy to another entity.
“This is usually required in a contract where company A needs to provide insurance coverage to company B, so company B enjoys protection from a new risk that arises out of company A’s conduct or operations,” says Shantih M. Charlton, CIC, CISR, senior account executive at Momentous Insurance Brokerage, Inc.
Smart Business spoke with Charlton about why you need additional insured endorsements from the companies you work with, and why you may need to provide them.
What are some examples of when an additional insured endorsement is needed?
A building owner/landlord may require a tenant to name the owner/landlord as an additional insured on the tenant’s insurance policies. If there is an accident or loss on the rented premises, such as a slip, trip or fall, the tenant’s insurance coverage can respond to the claim.
Another example would be a general contractor requiring subcontractors to name it and the owner as additional insureds on the subcontractor’s policies. Then, the subcontractor’s insurance protects the general contractor and owner if someone sues based on an accident arising from the work of the subcontractor.
Also, product manufacturers may cover its sellers as additional insureds. In these cases, the retailers are better protected from claims arising from products they sell.
How is additional insured status provided?
A certificate and endorsement are both required to provide additional insured status. The carrier needs to issue the endorsement, which is part of the policy. If you receive a certificate stating that additional insured status applies but there is no endorsement attached, request a copy of the actual endorsement or policy wording.
What is the cost to add this endorsement?
It might already be included in the policy premium, or it could cost $100 to $500 extra. The cost of adding an additional insured to a liability insurance policy is generally low, as compared to the costs of the original premium.
If you get a certificate from someone with the additional insured endorsement, do you still need your own insurance?
Yes. Additional insured status doesn’t mean you don’t need insurance. It only means the company receiving the additional insured status has insurance for the other company’s negligence. So if company A is an additional insured on company B’s policy, it is covered if company B’s negligence causes a claim and company A is named in a resulting lawsuit. If that same claim was actually due to company A’s negligence, or if company B’s insurance limits were not adequate, company A would need its own policy to protect its interests.
Is an additional insured endorsement the same thing as a named insured?
No. A named insured is the person designated in the policy as the insured. Additional insured status does not give the same rights under the policy terms as a ‘named insured’ or ‘insured.’
What should you keep in mind when entering into an agreement with another business?
Whenever your business enters into an agreement with another business, follow these general principals:
• Never assume the other business has liability coverage. Obtain a certificate of insurance or copy of their policy.
• Review both the contract and endorsement with legal and insurance representatives. Each situation presents unique risks, and contract wording and policy forms can vary greatly.
• Understand what your additional insured coverage status covers. Consult with your insurance adviser to better understand how this affects your business.
Shantih M. Charlton, CIC, CISR, is a senior account executive at Momentous Insurance Brokerage, Inc. Reach her at (818) 933-9860 or email@example.com.
Blog: Get more information on this and other important insurance topics at the Momentous Insurance blog.
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Although many businesses are concerned about their insurance costs, they often look in the wrong places for relief. In fact, there are a few areas that many businesses fail to consider despite their potentially huge impact on an insurance program and profitability.
Two of these areas are contracts and additional insured, says Brian Chance, vice president of claims and services at ECBM Insurance Brokers and Consultants.
“Companies assume liability in the contracts and purchase agreements they enter into,” Chance says. “It’s always best to make sure you understand what those liabilities are before you find yourself paying for them.”
Smart Business spoke with Chance about the keys to managing the impact of contracts and additional insured on your insurance program.
What types of problems could companies encounter if they are unaware of the resulting liabilities of contracts they sign?
Companies can wind up being responsible for paying for damage suffered by their business partners, or to members of the public. As a result of these contracts, they may be forced to give up rights and defenses they have under the law for accidents that take place. They could even be agreeing to give someone else insurance coverage under their own insurance policy — an additional insured.
Why is allowing a business partner to be an additional insured a bad idea?
It creates additional expense and risk. When you make someone an additional insured under your policy, you give that person coverage under your policy, even for the things that they do wrong. So you essentially become the insurance company for someone else. You and your carrier become responsible and liable for those actions.
Without a proper contract review, you will find yourself paying for things or forcing your insurance company to pay for things that you didn’t anticipate because you can’t control the behavior of the people with whom you do business.
What steps can companies take to manage contracts and additional insured?
Companies should first limit and control the people who are allowed to execute contracts with anyone for anything. Once they know which people will be allowed to work on their contracts, they should train them on the problematic issues they should be looking for in any agreements they may enter into. Additional training is important for anyone working on contracts
Finally, they should work with a competent insurance professional to help evaluate what they are being asked to sign and to determine what liabilities they are taking on for their company. An insurance adviser can help you identify some of the common problems in the agreements he or she is reviewing and find ways avoid those problems.
What particular issues should companies look for in contracts
It is standard practice in most industries, especially in leases or construction agreements that, as part of a business transaction, you become responsible for anything and everything that goes wrong. For example, in a lease agreement, if you are a tenant, your landlord might include language in the lease that makes you responsible for things that happen in the parking lot. So if something were to happen in the parking lot, you could be surprised to find out that you are responsible, under some circumstances, for taking care of it on behalf of the landlord.
What can happen as a result of signing a contract that isn’t properly evaluated?
You could become responsible for paying the other party for damages that arise under that contract that aren’t covered by insurance. The simple fact that you have an insurance policy doesn’t mean that it covers everything that you might find yourself doing.
If you sign a contract with someone, and as part of that contract you agree to be responsible for something your insurance policy doesn’t cover, you have to pay for it — not your insurance company.
How can a company determine whether someone should be added as an additional insured
First, you should avoid doing it as much as possible. But in business today, that’s not always possible. When it is unavoidable, you need to be as careful as possible as to who you are giving insurance coverage to — and what responsibilities you are taking on.
For example, if you are hiring a contractor to do work for you, you want to make sure that person has a very good safety record.
On the flip side of that argument, when you are doing business with someone else, you should always try to get the other party to give you additional insured status under its policy. It can be helpful because it gives you some protection that you aren’t paying for. Otherwise, you would have to fall back on your own insurance policy or pay for it out of your own pocket.
It’s like playing offense and defense. You don’t want to give additional insured status to others, but you should try to get it yourself if you can.
What can companies trying to gain additional insured status under another company’s policy do to increase their chances of success?
Many business owners don’t understand the value of the insurance coverage that is provided to them as an additional insured. Therefore, you should always ask for it with the hope and expectation that the other side will give it to you because they don’t understand how valuable it is.
Brian Chance is vice president of claims and services at ECBM Insurance Brokers and Consultants. Reach him at (610) 668-7100, ext. 1325, or firstname.lastname@example.org.