Difference Between a Named Insured, Insured, and Additional Insured
Named Insureds Are Afforded Broader Coverage Than Other Insureds
General liability policies cover various people and entities as insured parties. These can be divided into three groups: named insureds, insureds, and additional insureds.
I. Named Insureds
Named insureds are individuals or companies listed in the policy declarations. A named insured may be a sole proprietorship, partnership, corporation or another type of entity. Most liability policies use the term you to indicate the named insured.
A majority of small businesses consist of a single company so the declarations lists one entity only. For example, Franklin Foods Inc. is a privately held corporation owned by five members of the Franklin family. Franklin Foods Inc. is the legal name of the food manufacturing business. Consequently, the corporation is shown as the named insured on the firm's general liability, business auto, and umbrella policies.
Some businesses consist of more than one entity. Most liability insurers will insure multiple entities under a single policy if one person or company holds a majority interest in the others. For instance, suppose that the owners of Franklin Foods Inc. create a second company called Franklin Distribution Inc. The new company was created to deliver products made by Franklin Foods to buyers. The Franklin family owns 100% of both companies so the two entities are insured under the same liability policy.
Some policies may list both a corporation and an individual as named insureds. For instance, Mary Miller owns 51% of the stock of Miller Medical Inc., a healthcare company. Because Mary is a majority owner of the corporation, both she and Miller Medical Inc. are included on the company's general liability policy as named insureds.
Broadest Level of Coverage
Named insureds are afforded broader coverage under a liability policy than other insureds. This is because the "who is an insured" language in the policy restricts coverage for all insured parties except named insureds. An entity listed in the declarations is covered for virtually any the activity the business undertakes (subject to policy exclusions).
Commercial liability and auto policies impose specific obligations on the named insured. For instance, general liability policies typically require you to report claims or occurrences to your insurer. Similarly, the standard commercial auto policy stipulates that you must notify the police if an auto has been stolen.
Liability policies assign specific duties to the first named insured, meaning the entity listed first in the declarations (if the policy includes more than one named insured). The ISO general liability policy requires the first named insured to keep records of information the insurer needs to calculate the premium. The first named insured must provide this information whenever the insurer requests it.
The term insured is a generic word used to describe any person or entity that qualifies for coverage under the policy. A named insured is an insured.
Most liability policies automatically cover certain categories of individuals or entities as insureds. These are described in the section entitled Who Is An Insured. The coverage each is provided depends on its relationship to the named insured. For example, employees and executive officers qualify as insureds. Employees are insureds only while performing their duties as employees of the business named on the policy. They are not insureds while acting as employees of any other business or while they are engaged in personal activities. Likewise, executive officers are insureds while performing their duties as officers of the named insured corporation. They aren't insureds with regard to activities they perform on behalf of any other organization.
Commercial auto policies also provide automatic coverage for various insureds. For instance, most policies extend auto liability coverage to anyone driving a covered auto that's owned or hired by the named insured.
III. Additional Insured
An additional insured is a party added to a liability policy as an insured with regard to a specific job, activity or location. Most additional insureds are covered via endorsements but some may be included in the "who is an insured" language in the policy. Generally, a person or entity will qualify for coverage as an additional insured, only if all of the following circumstances exist:
- The person or entity has a business relationship with the named insured
- The business relationship creates a risk of lawsuits against the named insured
- The person or entity meets the description outlined in the additional endorsement or policy
For example, suppose that Busy Builders, a general contractor, has hired Perfect Piping, a plumbing contractor, to install water lines in a new stadium Busy is constructing. A Perfect Piping employee could inadvertently cause an accident at the job site, injuring a third party. The injured person might sue both the plumbing contractor and the Busy Builders for bodily injury. Consequently, Busy has demanded coverage as an additional insured under Perfect Piping's general liability policy. Busy is listed on an endorsement that covers contractors for which Perfect Piping is performing operations.
Additional insured endorsements provide limited protection. Coverage 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. In the Busy Builders example, Busy is covered only for claims arising from negligent acts committed by the named insured (Perfect Piping) while performing work for Busy Builders. To be covered, claims against Busy must involve injury or damage caused partly or entirely by the plumbing company's negligence.