The intent of an additional insured (AI) endorsement is to change the Who Is An Insured section of a commercial general liability (CGL) insurance policy (i.e.: vendor) to extend the vendors' CGL coverage to the additional insured for the negligent acts or omissions of the vendor or those acting on the vendor’s behalf.
While AI Status is most commonly requested on CGL insurance it is frequently requested on other insurance lines such as professional liability and commercial automobile insurance. This article’s focus will be on CGL coverage.
What is it?
For example in construction, on a subcontractors CGL insurance policy, they are the “named insured” and they can name the general contractor that they are working for (and any other required entities) as additional insured on their policy by way of an endorsement. This allows the general contractor to look to the subcontractor’s insurance policy if they are named in a suit related to work the subcontractor performed. An additional insured has many of the same responsibilities as the named insured except for things like paying premiums, receiving notice of cancellation and negotiating the terms of the policy.
Why do you need this/how does it protect you?
So why does an entity seek additional insured status?
- Additional insured status seeks to place the financial responsibility for a claim onto the policy of the party most likely to cause such claim.
- Reduce the impact on the loss history of the additional insured. Meaning that if a loss does occur due to the negligence of another party (vendor), the additional insured can avoid asserting the claim under its own policy, thus keeping the lost history lower, particularly if it is not the party directly responsible for the claim.
- By naming a person or organization as additional insured on your policy, you are making sure those appropriate entities are going to be picked up if something were to happen.
Complications in getting this:
The complicating aspect of additional insured endorsements comes first in ensuring you have the right endorsement form, and second in confirming the language on the form is accurate.
If you are trying to get an additional insured endorsement for a person or organization, you will need to know if that entity needs to be additional insured for ongoing operations, completed operations or both; that is going to determine which endorsement form you are looking for (CG 20 10, CG 20 37, etc.) and whether or not you are willing to accept an insurer’s proprietary endorsement
The endorsement will need to be carefully reviewed to determine if the language is appropriate to provide the entity coverage which meets their expectations and contractual obligations. If the language is wrong or is written ambiguously, that is going to affect the scope of coverage for that person or organization if something were to happen.
Failing to review the actual endorsement wording can be severely detrimental to your company. For example:
Let’s say company A is doing work for company B, and company B has been named as additional insured for company A through the CG 20 10 (ongoing operations only) endorsement. If a claim arises after the work has been completed on the project, the insurance would not cover the claim, as that endorsement does not provide coverage for completed operations. These are things that need to be considered when dealing with additional insured endorsements.
Additional Insured Endorsements are one of the critical fundamentals to monitor when it comes to vendor insurance review.
To read about the other 8 fundamentals of vendor insurance download the free guide "The 9 Fundamentals of Vendor Insurance Review".