Additional Insured Explained

Additional Insured Explained

When reviewing the insurance requirements section of a contract, lease, sales agreement etc., pay particular attention to the additional insured requirements. There are numerous reasons why companies request that they be added to your organization’s insurance policies as an additional insured via a certificate of insurance or a specific additional insured endorsement. Regardless of how you are asked to evidence adding a third party as an additional insured, you should connect with an ALIGNED Insurance broker to have them review the additional insured request and get them to explain the implications of adding them.

Why Do Company’s Agree To Add Others as an Additional Insured & What Are The Implications?

A named insured’s impetus for providing additional insured status to others may be a desire to protect the other party because of a close relationship with that party or to comply with a contractual agreement requiring the named insured to do so (e.g., project owners, customers, or owners of the property leased by the named insured). In liability insurance, additional insured status is commonly used in conjunction with an indemnity agreement between the named insured (the Indemnitor) and the party requesting additional insured status (the indemnitee). Having the rights of an insured under its indemnitor’s commercial general liability (CGL) policy is viewed by most indemnitees as a way of backing up the promise of indemnification. If the indemnity agreement proves unenforceable for some reason, the indemnitee may still be able to obtain coverage for its liability by making a claim directly as an additional insured under the indemnitor’s CGL policy.

Q. Is there a difference between an additional insured and an additional named insured?

A. Yes.  Don’t be confused—additional insured coverage is different than “additional named insured” coverage. An additional named insured usually is an affiliate of the primary insured and gives the added entity rights to amend and or cancel coverage. As such you likely will not be able to add or be added as an additional named insured to another organization’s policy and you should not add any third parties as additional named insured’s to your policy. If this is part of the contract, it should be removed, but in most cases, it was intended to be additional insured and is typically amended accordingly.

Understand Your Insurance Coverage & Contractual Obligations

Understanding the terms of the contract, the extent of liability assumed in the indemnity agreement, and the insurance requirements—including the coverage provided or afforded by the additional insured request—are critical to minimizing future liabilities and exposure to losses.

Keep in mind, the liability assumed in the indemnification agreement of the contract can be broader than the coverage provided under the insurance policy or afforded by the additional insured language. A comparison of the two should be done to determine what is covered by insurance and what is not.

Many businesses choose to transfer or accept risk through contracts, purchase orders and lease agreements. However, not all contracts or endorsements are created equal. Speak to ALIGNED Insurance Broker to learn more about issues surrounding additional insured requests, contractual risk transfer and how it can be a part of your overall risk management program.
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