What does an Additional Insured mean? It is an endorsement that does pretty what its title describes. It adds an insured person or entity to your policy.
The endorsement is used very frequently in commercial insurance but its no stranger in a personal policy either.
In almost every case, the coverage is extended to a third-party person or entity is limited based on the relationship between the named insured and the additional insured.
What coverage is provided by the Additional Insured Endorsement?
The additional insured (AI) endorsement can be added to many types of commercial policies with General Liability being the leader of the pack.
Typically the relationship between a commercial business and its customer creates a risk to the customer based on the acts and operation of the commercial business (contractor) and therefore the customer wants that risk mitigated by the contractor’s insurance policy.
Additionally, the insurance company offering the additional insured coverage will become the primary insurer when a claim is filed as the result of the named insured’s operation.
Examples of relationships when an Additional Insured Endorsement is Common
ABC Property Management owns a cluster of duplex unites and hires Apex Painting to paint the exterior of each unit. An employee of Apex uses some very strong chemicals to remove dirt and grime from an occupied unit and the tenant has a severe reaction to the chemicals.
The tenant hires an attorney who files a negligence suit against ABC Property Management and Apex Painting for medical expenses and lost wages. If ABC Property Management had demanded Apex Painting to name them as additionally insured on the general liability policy, Apex Painting’s policy would respond to the lawsuits and pay defense costs and damages up to the limit of the policy.
EZ Food Mart operates a specialty grocery store and leases its space from Retail Space Partnership. A customer in the store inadvertently runs her shopping cart into a large display of wine which then falls onto another customer who is severely injured from the weight of the wine bottles and broken glass.
The injured customer’s layer names both EZ Food Mart and Retail Space Partnership in a bodily injury lawsuit for medical expenses lost wages, and pain and suffering.
If Retail Space Partnership had demanded EZ Food Mart to name them as an additional insured, EZ Food Mart’s general liability policy would respond as the primary insurance company and Retail Space Partnership’s policy would be secondary (excess) over the EZ Food Mart policy.
How much does it cost to add an Additional Insured to a Policy
In most cases, the additional premium charged for an additional endorsement is negligible when compared to the total premium of the insurance policy.
In fact, many companies today will allow the insured to pay a flat fee of $50 – $250 that allows the policyholder to add an additional insured whenever it’s needed with no limit on the number of additional insured parties being added.
For example, if you are a large painting contractor who wins the bid on painting a government organization like a high school building, there may be several parties involved with the project who will require you to add them as additionally insured on your contractor’s insurance policy.
Who’s responsible for obtaining the Additional Insured Endorsement
As the contractor, subcontractor, or lessee, you will be responsible for obtaining the additional insured endorsement and providing proof to the interested party demanding it.
This can generally be handled by calling or visiting your insurance agent and giving them the name of the person or entity to be additionally insured and provide the nature of the relationship along with the estimated time the endorsement needs to remain in force.
Your insurance agent will then notify the insurance company and order the endorsement and provide you with a certificate of insurance for your customer or landlord.
It’s important to note that you must advise the insurance agent or company when the contract has been completed so the endorsement can be removed from your policy.
Is the Additional Insured covered the same as the Named Insured?
When we talk about coverage afforded to an additional insured, the term Scope of Coverage is applied.
For example, if you are a contractor on a construction project, your policy will cover the additional insured for any claims that arise out of the work or operations of you are performing on your customer’s (the additional insured) behalf.
The same would apply to a landlord-tenant relationship. Your liability policy would only cover the landlord for claims resulting from your use of the rented premises.
With a commercial property policy, an additional insured is only covered for its insurable interest in the property. The landlord would not be entitled to coverage a tenant’s personal property or business personal property located on or in the premises.
Who is eligible to be an Additional Insured on My Insurance Policy?
Not just anyone or any entity can be listed as an additional insured on one of your insurance policies. Insurable interest must exist between you or your business and the person or entity requesting the additional insured endorsement.
Here are some common relationships that create insurable interest:
- Property Owner and General Contractor
- General Contractor and subcontractor
- subcontractor and specialty contractor
- Government entity and permit holder
- Property Manager and general, sub, or specialty contractor
- Landlord and tenant
What types of Insurance Policies allow an Additional Insured
Any type of insurance policy the provides coverage for third-party losses can have an additional insured endorsement added to the policy. This generally includes:
- General Liability
- Commercial Property
- Professional Liability
- Errors & Omissions
- Automobile Liability
- Renters Insurance
Most businesses are inevitably asked to name a customer as an additional insured on a worker’s compensation policy. You cannot do that because workers’ compensation does not provide third-party coverage.
Your first call should be to Fairbanks Insurance Brokers so we can assure your client that the additional insured endorsement has been completed. And while we’re talking to you, let’s talk about all your coverages so we can mitigate your risks.
Here is What We Recommend
General Liability: Contractors General Liability will be the foundation of protection for your business. The coverage will respond if you or your employees are found liable for bodily injury, property damage, or have a products/completed operations complaint. The coverage also covers defense costs for your business to respond to any lawsuits brought by a third party.
Workers’ Comp: Many states will require contractors to provide workers’ compensation coverage for their workers before they can begin a project. Accidents will happen at the job site that can result in an employee becoming injured and missing work. Your workers’ compensation coverage will provide financial assistance for medical expenses and lost wages.
Surety Bonds: It’s very likely that your state will require you to be licensed before you can begin operations. Most states and customers will require contractors to offer a license or surety bond before you are allowed to bid on a job or begin working.
Commercial Auto: Typically, most contractors will have light and heavy vehicles that require commercial auto insurance to make certain their vehicles can be repaired or replaced in the event of an accident, vandalism, or theft.
Tool Coverage: Also known as Inland Marine Insurance, this policy will provide for reimbursement for expenses to repair or replace tools and equipment. Your tools represent an important part of your livelihood, so we always encourage carpentry contractors to consider this valuable coverage.