What Is Additional Insured Coverage?

Definition & Examples of Additional Insured Coverage

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An additional insured is an individual or business is added to a policy that wasn't originally on it.

Learn more about additional insureds and how they work.

What Is an Additional Insured?

Many contracts used in business require one party to cover another as an additional insured. Additional insureds may be required for general liability, commercial auto, and commercial property policies.

Additional insureds are needed because policies only protect the parties named in the policy documents. Many companies engage in business relationships with other firms. While these relationships can be beneficial, they also create a risk of lawsuits. One company may negligently cause an accident that injures a third party. The injured party may then sue one or both companies for damages.

Adding other parties as additional insureds extends the coverage offered by your policy to those parties.

How Additional Insureds Work

Here are some examples of when an additional insured on a policy would be useful:

  • Regal Realty owns Apex Apartments, an apartment complex. Regal hires Prime Painting, a painting contractor, to paint the exterior of the complex. A Prime employee is cleaning paintbrushes when he accidentally drops a cigarette into a bucket of paint thinner. The paint thinner ignites, causing a fire. The tenant of a nearby apartment is injured by the smoke and sues both Prime Painting and Regal Realty for bodily injury.
  • Fancy Foods operates a grocery store in retail space it rents from Buildings, Inc. Lisa is shopping at the store when a ceiling tile falls on her head. Lisa is injured and sues both Fancy Foods and Buildings Inc. for compensation.
  • Able Appliances distributes refrigerators manufactured by Handy Home Products. An Able salesperson is demonstrating a refrigerator feature to a customer when a panel snaps off the front door. The customer is injured by the flying panel and sues both Able Appliance and Handy Home Products for bodily injury.

In each of the above examples, one company's negligence has triggered an accident that resulted in a claim against the other. Regal Realty, Buildings, Inc., and Able Appliances could protect themselves against such claims by being covered as an additional insured under the other company's general liability policy.

Additional insured coverage is typically provided via an endorsement, which is an addition to your policy. Some endorsements are very specific and only cover the person or company listed in the endorsement. Others provide blanket coverage, which means they cover anyone who meets the definition of additional insured in the endorsement.

Most additional insured endorsements are designed to cover certain types of parties. For instance, some are designed for landlords, while others cover state or local governments that have issued a license or permit. Others are intended to cover project owners or general contractors for which policyholders are performing work.

Any coverage afforded to your company under an additional insured endorsement should apply on a primary basis. That is, if a claim is filed against you that is covered by the endorsement, the policyholder's insurer should pay first. You shouldn't have to rely on your liability policy to cover the claim unless your additional insured coverage has been used.

Some liability policies contain wording that automatically covers certain parties, such as landlords or contractors, as additional insureds. When this wording is included in the policy, you don't need an additional endorsement to cover those parties.

Do I Need Additional Insured Coverage?

Like many businesses, your firm may have engaged in a business relationship with another company. For example, you may have hired a contractor to perform work, leased a building to a tenant, or rented machinery to a customer. Because such relationships may result in lawsuits against your firm, you should require the other company to cover your business as an additional insured.

The requirement for additional insured coverage should be clearly stated in your contract. This is important for two reasons. First, the contract will provide written verification of the other company's obligation to you. Secondly, some additional insured wording provides coverage only if the additional insured status is required by a written contract. When this wording is included in the endorsement, your firm may not be provided additional insured coverage unless the contract specifically requires it.

If your contract requires another company to cover you as an additional insured, request a copy of the additional insured endorsement. Ask your agent or broker to review the endorsement to ensure it meets the requirements specified in your contract. Consult your attorney to review the endorsement as well.

Some business relationships may require your firm to insure another company as an additional insured. Read the contract carefully so you understand your obligations and check the limits on your policy to ensure they are adequate.

If your company hires an independent contractor, verify that the contractor has purchased liability insurance. Ask for a certificate of liability insurance and call the agent, broker, or insurance company listed on the certificate to verify that the policy is in force.

Your Liability Insurance

If your firm is covered under another company's liability policy as an additional insured, you still need liability insurance. An endorsement is not equivalent to a general liability policy. It generally covers the additional insured only with regard to the premises, project, product, equipment, etc. described in the endorsement. It doesn't cover the additional insured for any other activities.

As an additional insured, you're typically covered for claims from the named insured's negligence or from negligence committed jointly by you and the named insured. An additional insured endorsement may not provide coverage for claims due to your negligence alone. To protect your company against these claims, you should purchase a liability policy.

Key Takeaways

  • An additional insured is when an individual or business that wasn't originally on a policy is added to a policy. Organizations with general liability insurance or other types of coverage may add additional insureds to extend coverage so they are also protected by the policy.
  • Additional insureds are needed because policies only protect the parties named in the policy documents. 
  • Additional insured coverage is typically provided via an endorsement, which is an addition to your policy.
  • If your organization is engaging in business with another company, you may need to add additional insureds.