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Additional insured

An additional insured is a business, individual, or other entity included in a general liability policy in addition to the named insured. Additional insureds are a way of extending your liability insurance coverage to another person or business.

What is an additional insured?

An additional insured policy endorsement indicates that another individual can be provided coverage from an insurance policy through extension of the policyholder. However, their protection is more limited than that of the policyholder themselves.

Additional insured endorsements can help provide legal defense coverage for third party liabilities that a person working with the policyholder may face in their day-to-day operations. This could include claims of bodily injury, property damage, or advertising injury to a client, customer, or other third-party.

For example, an IT consultant who works as an independent contractor holds a small business insurance policy. This protects the consultant from lawsuits, injuries, and other risks.

If the consultant works with two software developers on a regular basis, the software developers may ask the IT consultant to list them on an insurance policy. This provides the software developers with coverage benefits.

What is the difference between a named insured vs. additional insured?

A named insured is also known as primary policyholder. This is the group, individual, or entity whose name is directly and first mentioned on the contract or policy. It’s often the person or organization that pays the premium.

The named insured benefits from all coverage included in the policy, while the additional insured’s coverage is limited to the risks they face as part of their business relationship with the named insured.

In the example above, the IT consultant would be the named insured, taking full responsibility for the policy, paying premiums each month, and enjoying full coverage benefits.

If the IT consultant lists a client as an additional insured, the client would receive coverage benefits over a loss only if it directly involves the consultant and their business relationship.

What is the difference between a certificate holder vs. additional insured?

A certificate holder constitutes any group, business, or individual covered by an insurance policy. A certificate holder can contact the insurance company to receive proof of insurance that confirms the additional insured is included in the policy. Typically, this certificate is provided upon request.

An additional insured is a certificate holder, but not every certificate holder is an additional insured. In other words, each person, group, or entity mentioned and covered by the insurance policy could be a certificate holder.

The IT consultant from the example above names the software developers as additional insureds and gives them proof of insurance. The software developers are now certificate holders.

What is the difference between a loss payee vs. additional insured?

A loss payee is a person, organization, or business that receives the payment from a claim after a loss. The named insured is the loss payee in every situation, although the additional insured might be a loss payee as well.

The named insured would likely be a loss payee for every claim, while the additional insured is included only if the loss affects them.

For example, the same independent IT consultant includes software developers as additional insureds. The software developers would be included as a loss payee for losses that occur only while the IT consultant is directly working for them.

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When should you add an additional insured to your policy?

The cost of adding an additional insured to your liability coverage is relatively small, and it may be required for leases and contracts. It’s also useful in attracting contractors and business partners.

There are five key reasons why you might list someone as an additional insured on one of your liability policies.

1.It is required by your landlord

One of the most likely reasons a small business owner will add an additional insured to their liability coverage is because it’s required by their landlord to sign a commercial lease.

2. It is contractually required

Most often used in hosting events. Many venue owners require anyone renting their space to list them as an additional insured on the renter’s general liability insurance, and for any subcontractors involved.

3. Government permits and licensing requirements

If your job requires permits and licensing, you may be required to add the government entity that issues the license as an additional insured. This is often required for contractors and other tradespeople.

4. To help attract talent

Some business owners will add their coverage to a consultant or contractor doing work for them, as a way of attracting talent and as a benefit to the contractor.

5. You have vicarious liability

Vicarious liability refers to the legal responsibility you might have for someone else’s mistake, such as an error by an employee or a contractor. An additional insured endorsement is a way of insuring against that liability.

"Some business owners will add additional insured coverage as a way of attracting talent"

How to add an additional insured

To list an additional insured on one of your policies, just notify your insurance company. They’ll add an additional insured endorsement to your policy, also known as a rider.

Your insurance broker will want to know about the people or companies you’re adding to your coverage. They might also ask about the additional insured’s loss history and may adjust your premium to account for any additional risk.

Choose between a scheduled vs. blanket additional insured endorsement

With a scheduled endorsement, you would give the name of an individual or business to your insurance company to list as an additional insured. When adding a scheduled endorsement, it’s a good idea for you to verify the names of your additional insureds are listed and spelled correctly.

A blanket endorsement, also known as an automatic additional insured endorsement, requires you to describe those whom you’re extending coverage to. This will automatically extend your additional insured coverage to any individual or organization you are contractually obliged to provide this coverage for.

For example, a business that frequently hires contractors might use a blanket endorsement to extend additional insured coverage to all of its contractors while they’re doing work for the business.

Whichever approach you take, anyone requiring additional insured status may want to see written proof of this coverage. As the insured, it’s a good idea for you to verify this coverage as well.

Make sure you have the right liability coverage

Before you can add a subcontractor, a landlord, or anyone else as an additional insured, you’ll need your own liability coverage first. Keep in mind there are limits to how much protection the additional insured can receive. For example, if a claim arises because of the additional insured’s own negligence, then the insurance company will likely reject the claim.

Check your policy limits

Whomever you add as an additional insured may have minimum coverage requirements, especially if they have a license that has insurance requirements. Make sure you check with the additional insured and your insurance broker to see you have enough coverage. You might also need excess coverage through commercial umbrella insurance if you have a large number of additional insureds or just a few with large coverage requirements.

What policies are additional insureds typically used on?

There are two types of insurance policies used with additional insured requirements. These are policies you likely already have as a small business owner or should consider adding them as part of your own risk management plan:

  • Commercial general liability insurance covers common business risks such as customer injury, damage to a customer’s property, and advertising injury. General liability coverage is often the first policy a new business owner acquires.
  • Commercial property insurance, sometimes known as tenant insurance, covers your business property in case it’s lost, stolen, or damaged. It’s often required for commercial leases and landlords may require you to add them as an additional insured.

While additional insureds can be added to different types of liability policies, it should be noted that they cannot be added to a professional liability insurance policy (also referred to as errors and omissions insurance).

What are some limits of additional insureds?

While adding someone to your liability coverage as an additional insured can reduce their risk, this benefit is not without limits. There are exclusions to this coverage. The additional insured endorsement only applies to claims directly related to your business relationship.

For example, if you added your landlord to your commercial property insurance, any property damage or other claims the landlord makes on your policy would be limited to the building or unit you lease and your use of that building. It would not apply to other tenants in the building, or other buildings the landlord owns.

Your liability coverage also wouldn’t extend to other risks your landlord faces, such as auto insurance or cyber liability insurance. When you extend coverage through an additional insured endorsement, it only applies to one underlying policy.

Additionally, if you’re a contractor and you named subcontractors as additional insureds on your general liability insurance policy, the subcontractors would only be covered as it relates to the work they do for you. Any work the subcontractors do for someone else would not apply to your coverage.

Whatever coverage limits or restrictions you face would also apply to your additional insureds, so they won’t receive more coverage than you do.

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