Often times, when your business enters into an agreement with another party, there will be a section of the contract that outlines insurance requirements. Very frequently, the party who is offering the contract or job will require certain limits and requirements of insurance. One of the most common requirements is that of an "additional insured" status. We see these requirements very often with construction contracts, landlord agreements, franchise agreements, and many other types or agreements specifically on general liability, professional liability, auto liability, and umbrella policies.
So what exactly does it mean when someone requests to be "additionally insured" under your policy?
The basic answer is that the third party requesting the status wants protection under your insurance policy for a liability exposure which you are creating as a result of the work you are performing.
Real Estate Example
A landlord of a commercial property may want a tenant to list the landlord as an additional insured under their general liability policy in case a lawsuit arises out of the tenants' use of the rented space. A common occurrence is a "slip and fall" situation at the tenant's premises resulting in a lawsuit. Commonly, the injured party and their attorney will try to go after both the tenant and the property owner for whatever reason. For instance, maybe there was ice on the sidewalk or wet floors.
A general contractor is hired by an individual to build a new house. The general contractor is overall going to be responsible for the proper and timely completion of the house. That being said many different specialties go into the construction of a home such as excavation, carpentry, electrical, plumbing, HVAC, roofing, etc. The general contractor will hire other companies or "sub-contractors" to complete different portions of the work. This can create a potential problem for the general contractor if one of the subcontractors causes bodily injury or property damage while working on the home. This is why the general contractor will require each of the subcontractors to name the general contractor's business and the homeowner as an additional insured under each of the sub liability policies. This will provide a certain level of liability protection to the general contractor and homeowner should certain unforeseen issues occur.
Insurance companies will handle these additional insured requests in many different ways. There are several different policy forms on the market, each with its own specific wording on the policy on how and what rights are afforded to an "additional insured." You and your insurance company must understand the legal relationship you now have as a result of entering into a contract with another party.
In most cases it also will cost you an additional premium to add another party as an additional insured to your policy. Some companies will schedule the other party as an additional insured on the policy. Another way that is commonly used is by that of a "blanket additional insured endorsement" which usually says that any other person or entity can be named as additional insured under your policy as long as it is required by a written contract. The contract and additional insured status must also be executed prior to a loss.
We always highly recommend that you have your attorney and insurance agent review contracts prior to you entering them. Hopefully, this article will help you understand the basics of the additional insured endorsement. Give us a call or submit an online consultation request.