Considering a request to add an INSURED by
endorsement or on a certificate can be intimidating, particularly if a request
is made to explain the difference between a party named as an “Additional
Insured” or named as an “Additional NAMED Insured”.
In general, being a named insured gives
that party “greater rights” under the policy. However, there are also downsides
in that there are also greater responsibilities. Even more important, from the
insured’s and the Insurance Company’s perspective, additional named insured
status is something to be avoided unless absolutely necessary.
An additional named insured is
essentially the same as the policyholder. Think of an additional named
insured as a subsidiary or similar firm. There is much more than a contractual
relationship (excepting some management contracts). Under these circumstances,
this status is probably appropriate, but it rarely is under the circumstances in
which agents are too often asked to name a party as a named INSURED.
An “additional” insured is where two
arms-length parties have agreed contractually that one party is to be added to
the other’s insurance. That party usually cannot be added to a liability policy
as an additional named insured. It should be noted that this does not
apply to various property coverage(s), most notably builder’s risk. When such
requests are received from arms-length parties, it most often occurs because the
requestor doesn’t understand the significance of named insured status.
There are numerous advantages and disadvantages
of additional insured status.
include, but are not limited to:
To the degree that coverage is provided,
there is no question of enforceability as is so often the case with
The additional insured has direct rights to
defense from the named insured’s insurance carrier, and must be provided a
separate defense. Defense of an additional insured is paid in addition to
the limits of liability unless otherwise noted by contract.
The additional insured may, in fact, have
“broader coverage” than the named insured under certain circumstances.
There may be restrictive coverage conditions that would apply to a named
insured (including an additional named insured) that wouldn’t apply to the
additional insured since he/she is not a party to the contract.
The additional insured obtains personal
injury coverage that is usually excluded by a contractual assumption.
Depending upon the jurisdiction, the
additional insured may be provided coverage for its sole negligence if it
has any causal relationship with the named insured. ISO’s new endorsements
seek to restrict that as many states currently do by law.
include, but are not limited to:
There are over 30 ISO additional insur3ed
forms. In addition to that, there are a seemingly limitless number of
company-specific additional insured forms, blanket and/or manuscript forms.
So just saying “additional insured” means almost nothing.
The additional insured endorsement provides
only a limited amount of coverage. The endorsement must be read to
determine how limited it is. Many forms are becoming increasingly limited.
At least one carrier has changed their form three times in the past year.
Any guess as to how many of those changes were in the additional insured’s
favor? And if unfavorable for the additional insured, what does that do to
the named insured who may find himself/herself in breach of contract?
Unless requested otherwise, the additional
insured does not extend to officers, directors, employees, etc. of the
additional insured. Contract that with additional named insured status
where that could happen. Ask yourself, as the insurer or even the purchaser
of the policy…do you want to broadly enlarge the scope of “Who is an
Insured” under your policy?
Unless handled carefully, additional insured
status could trigger the other insurance clause.
The limits provided by the policy on which
the additional insured is added could be eroded or exhausted by claims, or
that carrier could have become insolvent, or the policy could have been
cancelled with no notice to the additional insured (currently being
litigated in some jurisdictions). The same could be true if there is an
An additional insured usually receives a
certificate of insurance as “proof” of coverage. This is an
unenforceable document, as has been ruled in almost every court.
F. Darrell Lindsey
U.S. Licensed Broker