The Meaning of Additional Insured
The term additional insured means a person or entity that is covered as an insured under another party's insurance policy. Parties may be included as additional insureds under liability, property or commercial auto policies.
Reason for Coverage
Typically, a business provides additional insured coverage because it is obligated to do so under a contract. For example, Busy Builders hires Easy Electric to install wiring in a building Busy is constructing.
Similarly, Classic Consulting leases a car from Larry's Leasing, an auto leasing company. The lease stipulates that Classic Consulting must include Larry's Leasing as an additional insured under Classic's business auto policy.
To obtain coverage as an additional insured under another party's insurance policy, a person or entity must meet certain requirements. The requirements vary depending on the type of coverage.
General Liability Coverage
To be added as an additional insured under a liability policy, a person or entity must meet two requirements. First, he or she must have a business relationship with the policyholder (named insured). Many common business relationships create a need for additional insured coverage. Here are some of them:
- Landlord and tenant
- General contractor and subcontractor
- Property owner and general contractor
- Government entity-permit holder
- Vendor and product manufacturer
Secondly, the person or entity seeking coverage must face a risk of lawsuits if the policyholder acts negligently during the course of their business dealings.
For example, suppose that you lease office space from a commercial landlord. A customer of yours could trip and fall on while entering your office space. If the customer was injured, he might sue both you and your landlord for bodily injury. His suit might allege that you are liable for his injury because you knew that the threshold was loose but failed to warn him of the danger. It might contend that the landlord is also liable because it failed to maintain the building properly.
Landlords know that they are viewed as "deep pockets" by potential claimants who may be injured on premises occupied by tenants. 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 coverage an additional insured under auto liability insurance are the same as those that apply to general liability. The person or entity seeking coverage must have a business relationship with the named insured (policyholder). He or she must also face a risk of third-party lawsuits as a result of negligence committed by the named insured.
For example, Paul owns Premier Properties, a company that owns and leases commercial property.
Paul's company has hired Luxury Landscaping to plant new shrubbery at one of the properties it owns. Paul knows that building owners are not generally liable for negligent acts committed by independent contractors. However, he knows that this rule has exceptions.
Premier Properties could be held vicariously liable for injuries sustained by a third party in an auto accident caused by a Luxury Landscaping employee. Premier could be liable if, say, the accident occurred while a landscaping employee was running an errand on Paul's behalf. To protect his company, Paul ensures that Luxury Landscaping has purchased auto liability coverage under a standard commercial auto policy.
If Premier Properties is sued by a third party for injuries sustained in an auto accident caused by a Luxury Landscaping employee, Premier should be automatically covered for the suit under the landscaper's business auto policy.
No endorsement is needed. This is because the policy contains an omnibus clause under the section entitled Who Is An Insured. The clause covers 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 that you operate a business in a building you lease from Premier Properties. The lease requires you (the lessee) to insure the building under a commercial property policy. Because Premier owns the building, it has an insurable interest in it. Thus, your lease requires you to list Premier Properties as an additional insured under your policy.
Scope of Coverage
The coverage afforded to additional insureds is usually limited in some manner. The limitations that apply may be described in an endorsement or in the policy itself.
An additional insured is usually covered under a liability policy only for claims that arise out of certain activities or operations performed on its behalf by the policyholder. For instance, a general contractor is an insured under a subcontractor's policy only for claims that arise from work performed on 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. Premier Properties (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