Additional Insured – Extending Coverage to Third Parties
In plain language: An additional insured is a person or organization not automatically included in an insurance policy but added as insured under the policy at the request of the policyholder.
Technical definition: The term “additional insured” refers to individuals or entities not originally covered by an insurance policy but added to the policy via an additional insured endorsement, extending the policy’s protection to said individuals or entities. This term is typically seen on the declarations page or within an additional insured endorsement, with the most association with Commercial General Liability (CGL), Auto, and Property policies.
When you lease a commercial space or enter a contract, chances are you may be asked to list the other party as an additional insured. Misunderstanding and misuse of additional insured can result in E&O exposure.
TL;DR
- What “additional insured” is – an individual or entity added to your insurance policy at your request.
- Why it matters – Misunderstandings can lead to coverage gaps and E&O claims.
- Common pitfalls – Misunderstanding additional insured vs. additional named insured can potentially be devastating for a client.
- One quick win – Provide client education on named insured vs. additional insured, and review all contract insurance requirements before binding.
What Is Additional Insured in Insurance?
In the world of insurance, the term “additional insured” applies to an individual or entity that is not automatically included as insured under an insurance policy but has been added at the policyholder’s request. This approach is commonly seen in various policy forms such as the Commercial General Liability (CGL) policy, Auto policy, and Property policy.
While the person or organization named in the declarations page of the insurance policy is automatically covered (the “named insured”), the additional insured is only covered under the conditions stated within the additional insured endorsement. This setup is often necessary for contractual obligations, such as a lease agreement or a construction contract where the lessee or contractor is required to add the lessor or project owner as an additional insured party on their insurance policy. It serves as an important risk management tool by transferring risk to another party’s insurance carrier. Often, these endorsements may vary by the additional insured’s status, their relationship to the named insured, and the activities the policy covers.
Key Related Terms to Know
- Named Insured – The main policyholder. The one whose name appears on the policy declarations.
- Additional Named Insured – An entity afforded the same level of protection and rights as the named insured.
- Waiver of Subrogation – An agreement by an insurer to avoid seeking recovery from a third party that causes a loss to an insured.
- Additional Interest – A party that doesn’t have claim to policy proceeds, but the insurer recognizes their financial interest in an insured item.
- Indemnity Agreement – A agreement that one party will make good on the financial loss or damage incurred by another.
Common Questions About Additional Insured
What Does Additional Insured Mean?
It means an individual or organisation listed on a policy in addition to the primary named insured, who is also protected by the policy. For instance, if a general contractor is the primary party on a commercial general liability insurance policy, the project owner may be listed as an additional insured to extend liability protection to them as well.
Who Can Be An Additional Insured?
An additional insured can be anyone the primary insured enters into a business relationship with like a landlord, client, or contractor among others who may require being listed as an additional insured as part of their contract requirements.
Can an Additional Insured File a Claim?
Yes, an additional insured can file a claim if the claim is related to the named insured’s negligence or actions. For example, if the named insured, a general contractor, causes damage to a project owner’s property, the project owner, if listed as an additional insured, can file a claim directly with the contractor’s insurance company.
What Is the Difference Between an Additional Insured and a Named Insured?
While both are protected under the policy, the named insured initiates the policy and can make changes to it. The additional insured, however, is limited to coverage as described in the additional insured endorsement, and cannot alter the policy.
Additional Insured vs. Named Insured
Named Insured and Additional Insured are two key terms that often create confusion. Both have rights under the policy but their degree of protection differs.
Comparison Area | Additional Insured | Named Insured
|
Primary use case | Extend coverage to satisfy a contractual obligation | Primary policyholder who has full control over the policy |
Coverage / concept type | Limited coverage as specified in the policy | Full coverage as stated in the policy |
Typical exclusions | Coverage only for loss connected to named insured’s activities | Standard policy exclusions apply |
Who is most affected by errors | Lessees, subcontractors, project owners | Primary policyholder |
Common mistakes | Misunderstanding coverage limitation | Overlooking requirement to add additional insured when needed |
Real Claim Examples Involving Additional Insured
Scenario 1: A commercial tenant (named insured) accidentally sparked a fire while operating equipment causing damage to the rented facility. The landlord, as an additional insured on the tenant’s policy, could file a claim with the tenant’s insurer.
Scenario 2: A subcontractor, who is the named insured, mistakenly cut through a water line while working, causing water damage. The general contractor, listed as an additional insured, was able to file a claim.
Scenario 3: A named insured organized a town fair and added the city as additional insured. When a fair-goer tripped and injured herself because of poor lighting, the city as an additional insured, was protected from liability.
Limitations and Common Mistakes
- Coverage does not apply to the additional insured’s own negligence.
- Assuming coverage applies to all operations between named and additional insured.
- Assuming being listed as certificate holder provides the rights of an additional insured.
- Failing to notify the insurance carrier that an additional insured needs to be added.
How to Explain Additional Insured to Clients
Personal Lines client: “An additional insured is some other person or company that is protected under your policy because your relationship with them creates a risk for them.”
Small Business owner: “As a business owner, you might enter contracts requiring the other party to be added to your insurance policy. This is known as adding an additional insured. They’ll have some level of protection under your policy.”
CFO or Risk Manager: “In your role, when you engage with vendors or enter into lease agreements, you may want to be protected under their insurance policy in case their actions cause you a loss. This is what it means to be an additional insured.”