Published April 07, 2020 • 5 minute read
Originally published February 2018. Updated April 2020.
Additional insured (AI) endorsements are a common occurrence in businesses in which one party hires another to provide a product or service. AI endorsements, despite how frequently they are used, can seem a bit complicated. Below is a breakdown of some of the most important information to know before pursuing such an endorsement to ensure that you and your company are approaching this agreement correctly and to its fullest potential.
What is an additional insured endorsement?
To start, an endorsement is an addendum added to an insurance policy that modifies the coverage. Endorsements may broaden or restrict the coverage provided by an insurance policy.
One example of a policy addendum that broadens the ‘Who Is An Insured’ is an additional insured endorsement. An additional insured is typically someone who is doing business with the named insured.
The intent of an additional insured endorsement is to change the 'Who Is An Insured' section of an insurance policy to extend coverage to the additional insured for the negligent acts or omissions of the vendor or those acting on the vendor’s behalf.
For example: On a subcontractor's commercial general liability (CGL) insurance policy, the subcontractor is the “named insured.” As the named insured, they can name a 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, but the former does not pay premiums, receive notices of cancellation, or negotiate the terms of the policy.
Are there different types of additional insured endorsements?
Additional insured status is frequently requested on a wide variety of insurance lines such as professional liability and commercial automobile insurance. It is, however, most commonly requested on CGL insurance. As such, the focus of this article will be on CGL coverage.
Why do entities seek to become or name an additional insured?
Claiming additional insured status yields a number of benefits and protections to an organization. Below are some of the most common:
- Additional insured status seeks to place the financial responsibility of a claim onto the policy of the party most likely to cause the claim.
- Additional insured status reduces the impact on the loss history of the additional insured. In other words, 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 loss 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, a named insured is making sure those appropriate entities are going to be held responsible if a risk event were to occur.
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What does an additional insured endorsement cost and how are they added?
Adding an additional insured is the responsibility of the named insured. Individuals or entities looking to be listed as AI should make this requirement apparent in their contract. In order to add an additional insured to a commercial general liability insurance policy, the named insured would have to contact their insurance provider. Most providers make the process fairly simple as AI endorsements are a common aspect of conducting business. Adding the additional insured typically requires only the name and address of the individual or entity that the named insured would like to add.
The cost to add a party as an additional insured will vary depending on the provider, though it may be as little as $50. Some providers will even allow their policyholders to pay a flat rate for the option to add as many additional insureds as they would like. Beyond the costs associated with the act of adding the endorsement, an additional insured will also affect the policyholder’s premiums. The change in premium will depend on the nature of the endorsement, making communication with the insurance provider crucial to understand the exact total costs associated with taking on an additional insured.
Can an additional insured file a claim?
Yes. Additional insureds have the ability to file a claim in the event they are sued after a risk event. The result of that claim, however, will be heavily dependent on the specifics of the endorsement. Misunderstandings of what is covered and what is not can still lead to the AI being held responsible for all or part of the ensuing damages.
That makes it all the more important for all parties involved to understand the specifics of the endorsement, which we will discuss in greater detail below.
What are the important considerations of additional insured endorsements?
There are two major factors to consider for review if you hope to attain adequate additional insured coverage.
Acquiring the Correct Endorsement Form
Failing to submit the proper form could 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.
The Language of the Endorsement
The endorsement will need to be carefully reviewed to determine if the language is appropriate to provide the entity coverage that meets their expectations and contractual obligations. If the language is wrong or is written ambiguously, it will affect the scope of coverage for that person or organization if a risk event occurs.
Common details to look for are exclusions to covering incidents that were not a result of the named insured’s negligence and limitations to the amount the named insured can be held responsible for if a claim is filed.
Additional insured endorsements are not a substitute for entities having their own insurance policies.
AI endorsements are an important part of working with other entities. They are, however, not intended to replace one’s own insurance coverage. As described above, additional insured endorsements can have a number of limitations to their coverage and these restrictions aren’t always obvious until a claim is filed.
Businesses should, therefore, always maintain their own insurance policies to cover other liabilities that may not be covered as an additional insured.
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".
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