General liability policies cover various people and entities as insureds. The insured parties include named insureds, insureds, and additional insureds.
The standard commercial general liability form outlines the parties that qualify for coverage in a section entitled Who Is An Insured. The first is the named insured, meaning the individual or company designated by name in the policy. The named insured may be a sole proprietorship, partnership, corporation or another type of entity.
The liability policy refers to the named insured as "you" or "your." The named insured is afforded broader protection than other types of insureds. Other insured parties, like employees and executive officers, are covered only while performing their duties on behalf of the named insured.
Liability policies impose certain obligations on the named insured, such as the duty to report claims and occurrences to the insurer. Similarly, commercial auto policies require the named insured notify the police if an auto has been stolen.
Most liability policies issued to small businesses cover one named insured. For example, Delightful Doughnuts Inc. is a private corporation owned by the Davis siblings. The company operates a small chain of doughnut shops. Delightful Doughnuts is insured under general liability, business auto, and umbrella policies. Because Delightful Doughnuts Inc. is the legal name of the doughnut business, it is listed as the named insured on all three policies.
Multiple Named Insureds
Some liability policies list multiple named insureds. Generally, a liability insurer will include multiple named insureds under a single policy if one person or company holds a majority interest in the others. This means that one of the parties owns more than 50 percent of the others or that more than 50 percent of each named insured is owned by the same majority owners.
Suppose that the Davis siblings open a restaurant called the Delightful Diner. They establish a new company called Delightful Diner Inc., which is the legal owner of the restaurant. The Davis siblings now own two corporations, Delightful Doughnuts Inc. and Delightful Diner Inc. Because the two corporations are owned by the same group of individuals, they can be insured under the same liability policy.
When a policy covers multiple named insureds, the entity that appears first is called the first named insured. The standard liability policy assigns this party specific duties regarding the annual audit. The first named insured must keep records of data (like sales and payroll) the insurer needs to compute the premium and forward such information to the insurer when requested.
A liability policy may list both a corporation and an individual as named insureds if the individual is a majority owner of the corporation.
In the standard liability policy, the term insured means any person or organization that qualifies as such under the heading Who Is An Insured. Because the named insured is described in this section, that person or entity is an insured.
The liability policy automatically covers certain people or entities that have a business relationship with the named insured. Such parties are insureds only within the capacity of that relationship. For example, employees are insureds for acts they commit within the scope of their employment by the named insured or while performing duties related to the conduct of the named insured's business. Executive officers and directors are insureds only with respect to their duties as such for the named insured. Employees, directors, and officers aren't insureds while engaged in personal activities or while performing duties on behalf of any other business.
An additional insured is a party added to a liability policy at the request of the named insured. Many businesses cover other parties under their liability policies to fulfill contractual obligations. Additional insureds are usually covered via endorsements. The scope of coverage provided to an additional insured depends on the language in the endorsement.
Coverage for an additional insured is usually tied to the premises, work, or services that are the focus of the business relationship between the additional insured and the named insured.
For instance, many businesses satisfy lease requirements by insuring their landlord under their liability policy using a standard ISO additional insured endorsement. The endorsement covers the landlord described in the endorsement schedule only with respect to liability arising out of the ownership, maintenance or use of that part of the premises leased to the named insured (tenant). The landlord is covered only to the extent permitted by law. Moreover, if the tenant is insuring the landlord to satisfy a contract, the landlord will not be afforded broader coverage or higher limits than the contract specifies. This means that if the lease requires the tenant to insure the landlord for $500,000 but the policy provides a $1 million limit, the landlord will be covered for $500,000.