What Does Additional Insured Mean?
Additional insured is a type of status associated with general liability insurance policies that provides coverage to other individuals/groups that were not initially named. With an additional insured endorsement, the additional insured will then be protected under the named insurer's policy and can file a claim in the event that they are sued.
Understanding Additional Insured
As an example of how the additional insured concept works, a business may ask a contractor to add them as an additional insured in their general liability policy. This is to protect the business in the event of legal claims that may arise as a direct result of the contractor's work or presence.
Usually, additional insured applies where the primary insured must provide coverage to additional parties for new risks that arise out of their connection to the named insured's conduct or operations. An additional insured often gains this status by means of an endorsement added to the policy, which either identifies the additional party by name or by a general description in a "blanket additional insured endorsement."
It is usually beneficial for a party to be covered as an additional insured because this will reduce the loss history of the additional insured and lower premiums. Instead, the losses post against the policies of primary insured, and their premiums will rise accordingly. Typically, a larger and more powerful business will require smaller operations, which want to do business with them, to name the large business as an additional insured. For example, a landlord in a commercial building will often require that a tenant have the landlord named as an additional insured on the tenant's insurance policies. In such a case, if there is an accident or loss on the tenant's premises, the landlord will benefit from the tenant's insurance coverage. Similarly, general contractors often require subcontractors to name the general and the owner on the subcontractor's policies. In this way, if the general contractor or owner is sued due to accidents arising out of the work of the subcontractor, the subcontractor's insurance will protect the general contractor and owner.
Similarly, manufacturers often wish to cover the sellers of their products as additional insureds under the manufacturer's liability policies. This helps provide motivation to the seller to promote the sale of the products because the seller knows that any product liability lawsuit against the seller will be covered by the manufacturer's liability insurance.
Additional Insured Costs
The cost of adding an additional insured is typically low, compared to the costs of the premium. Insurance company underwriting departments often consider the additional risk associated with additional insureds as marginal. Additional insurance coverage and endorsements are the subjects of frequent disagreements, misunderstandings, and litigation. The disagreements are often about whether the additional insurance coverage should cover "independent negligence" by the additional insured, or if it should only cover liabilities caused by the named insured's acts.