The Meaning of Additional Insured
Additional Insured Coverage is Often Required by Contracts
The term additional insured means a person or entity that is covered under another party's insurance policy. Additional insureds are often included under general liability, commercial property or commercial auto policies.
Reason for Coverage
One of the most common reasons for providing additional insured coverage is a contractual requirement. When one business performs work for another, the hiring company often demands coverage as an additional insured under the other party's general liability policy. The obligation to provide coverage is stipulated in a written contract signed by both parties.
A second reason for providing additional insured coverage is a government statute. A business may be required to cover a government agency as an additional insured as a condition of obtaining a permit to erect a sign over a public sidewalk. A business may also provide additional insured coverage voluntarily. For instance, a church insures its members under its liability policy for activities they perform on the organization's behalf.
To qualify for additional insured coverage, a person or entity must meet certain requirements. These vary by the type of coverage.
General Liability Coverage
To be included as an additional insured under a liability policy, a person or entity must have a business relationship with the policyholder (named insured). Here are some common business relationships that create a need for additional insured coverage:
- Landlord and tenant
- General contractor and subcontractor
- Property owner and general contractor
- Government entity and permit holder
- Vendor and product manufacturer
A second requirement for additional insured coverage is a risk of lawsuits as a result of the policyholder's negligence. For example, suppose you lease office space from a commercial landlord. If you fail to keep the entrance to your premises tidy, a customer could sustain trip and fall injury while entering or exiting your office space. The injured party might sue you for bodily injury. He might also sue your landlord, contending that the building owner knew your premises was cluttered but failed to require you to clean it up.
Landlords know that they are viewed as "deep pockets" by potential claimants. Thus, your lease will probably require you to include your landlord as an additional insured under your general liability policy.
Auto Liability Coverage
The requirements for additional insured under auto liability insurance are the same as those for general liability. The party seeking coverage must have a business relationship with the named insured (policyholder) and face a risk of third-party lawsuits as a result of negligence committed by the named insured.
For example, Busy Builders, a general contractor, hires Luxury Landscaping to plant new gardens at a medical complex Busy is refurbishing. Busy's owners know that under certain circumstances, Busy could be held vicariously liable for injuries sustained by a third party in an auto accident caused by a Luxury Landscaping employee. Busy could be responsible if, say, the accident occurred while a landscaping employee was running an errand on Paul's behalf. To protect the general contractor, Busy Builders' owners ensure that Luxury Landscaping has purchased auto liability coverage under a business auto policy.
If Busy Builders is sued by a third party for injuries sustained in an auto accident caused by a Luxury Landscaping employee, Busy should be automatically covered under the landscaper's auto policy. No endorsement is needed. The omnibus clause in the policy covers as an insured anyone who may be vicariously liable for the conduct of the named insured.
To qualify as an insured under another party's property policy, a person or entity must have an insurable interest in property covered by the policy. For example, suppose you operate a restaurant in a building you lease from Red-Letter Realty. The lease requires you to insure the building under a commercial property policy that includes Red-Letter Realty (the owner) as an additional insured.
Scope of Coverage
The coverage afforded to additional insureds is usually limited in some manner. The applicable limitations may be described in an endorsement or in the policy itself.
With regard to liability coverage, an additional insured is usually covered only for claims that arise out of the work or operations the named insured is performing on the additional insured's behalf. This means that a general contractor is an insured under a subcontractor's policy only for claims that arise from work performed by the subcontractor on the the general contractor's behalf. Likewise, a landlord is generally covered under a tenant's liability policy only for claims that arise from the tenant's use of the leased premises.
Under a property policy, an additional insured is covered only for its insurable interest in a specific piece of property. Red-Letter Realty (in the previous example) is covered under your property policy for its ownership interest in the building. It is not an insured with regard to any other property covered by the policy, such as contents that belong to you.
Article edited by Marianne Bonner