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.
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