You have probably heard of named insured if you have purchased any type of insurance policy. It applies to all insurance policies and can affect coverage if it is not correct. The named insured owns the policy. This does not necessarily mean that is who is paying for it, which is a common misconception. The individuals or entities (partnership, limited liability company, sole proprietorship, limited partnership, corporation, etc.) that are decided to be the named insured is who gets all of the benefits of the policy. Every single coverage offered within the policy is given to all named insureds. If there is only one named insured, then only that one will get the benefits. If there are multiple, they will all get the benefits of the policy. Keep in mind that the limits on the policy still apply, and do not multiply by the number of named insureds.
If you don't know who the named insured is on your existing policy, simply look at the declarations page as the person or entity will be listed there. You need to read the "who is an insured" portion of your policy as well because this gives additional people coverage, like employees, especially on a General Liability insurance policy. Your business may involve more than one named insured, and most companies will allow more than one on the policy as long as there is equal ownership across all entities. For example, if you have 2 limited liability companies, they must have the same members to both be put on the declaration page as named insureds.
It's possible that throughout your business operations another entity or individual will ask to be an additional insured on your policy. While this may sound alarming at first, it is totally normal and additional insureds do not get the same level of coverage as named insureds. However, an additional insured does have to be entitled to some sort of liability benefits on your policy, often due to contractual obligations in which you agree to indemnify someone or another business. This is commonly seen between general contractors and subcontractors.
Another common situation where you might see the additional insured request is between a landlord and a renter. If you are doing business and someone gets hurt on your premises and sues your business, the chances are high that they will also sue the owner of the building, your landlord. Because you have added the landlord as an additional insured on your policy, it will be his first line of defense if a claim arises, and will only go to his own policy if the settlement or judgment exceeds the limits on your policy.
Something to take into consideration when adding additional insureds to your policy is that you only have one limit to share between you and any additional insured on your policy. So, if you are a contractor and you are adding multiple additional insureds, you might want to consider a higher limit of liability, or a Commercial Umbrella insurance policy. Claims tend to be higher these days because of the rising costs of an attorney and court fees.
As you have probably realized by now, named insured and additional insured do not mean the same. It is not only critical for you to understand the differences but for the people who are requesting to be added to your policy. There is a common misconception in all industries that additional insured gives rights to the policy and all coverages, which is not the case.
Regardless of the business you are in, it is important to know what a named insured is and what an additional insured is. This is especially true if you are signing contracts with other individuals or entities. Many contracts will state that you have to add them and all of their entities and subsidiaries as additional insured to your policy. If you went ahead and added 20 entities and did not understand that you are now sharing a $100,000 limit amongst 21 insureds, that could turn out to be a big problem for you financially.
It is also critical that you understand how your insurance company handles additional insureds and what the process is. Some insurance companies have an endorsement on the policy that acts as a blanket, giving automatic additional insured status to anyone you agree to give it to by contract. This can be dangerous if you don't understand how it works, for the same reasons mentioned previously. It is difficult enough making sure that your business is covered properly, so you want to make sure your limit is sufficient for all of the additional insureds that you are adding to your policy.
Other insurance companies do not allow for the automatic coverage for additional insureds and may charge for each one. They may ask you what their interest is, and ask for a copy of the contract so that they can make sure that your policy can provide what they ask for. It may be a good idea, if you know you will be working with a lot of companies asking for additional insured status, to work with an insurance company that provides the automatic additional insured status if there is a contract. It might make it easier on your peace of mind knowing once that contract is signed, you have given them what they asked for.
As with anything insurance-related, there are some additional risks to be aware of. And if you are ever unsure, it is best to discuss all of your operations with your insurance agent. Insurance agents are there to help you weed through all of the insurance languages and make sure you don't have any gaps in coverage. Here are some additional risks, but keep in mind these are not all-inclusive.
Self-Insured Retention – If your General Liability insurance policy has self-insured retention, which is like a deductible, that has to be paid by you before the additional insured can get the benefits from your policy. This can be an issue since you contractually agreed to insure them on your policy as an additional insured and they assumed that means they would be able to receive benefits in the event of an unfortunate situation. Also, some companies are learning about this problem and are adding language to the contract stating that the self-insured retention must be paid as soon as possible. So, if you think it may be a problem for you to come up with the self-insured retention amount in the event of a claim, it may be wise to discuss getting it removed from your policy if that is an option. That way, there will be no issue for your additional insured to receive the benefits you agreed to give them if a lawsuit pops up as a result of your work.
Insured versus Insured – Being asked by an entity to be an additional insured on a named insureds professional policy, like and Errors and Omissions policy is becoming pretty common. Unfortunately, there is often an exclusion on these types of policies called the Insured versus Insured exclusion which states that no insured can sue another insured. This could cause you both to lose all benefits awarded under the policy.
Notice of Cancellation – Some additional insureds will request that they receive notice if your policy is canceled. While most insurance companies will do this, it can be a problem if the mailing address for the additional insured is not correct. Some additional insureds will even ask for notice of any changes to your policy, but they should understand that they do not have this right under your policy.
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