What is an additional insured endorsement and what does it provide to my clients?
One of the oldest and most confounding debates in the insurance world is over the question of what is covered by an additional insured (AI) endorsement to a Commercial General Liability (CGL) policy.* Some say that an AI endorsement covers the additional insured as though it had been provided its own separate CGL policy. Another common view is that an AI endorsement covers the additional insured only for its vicarious liability for the acts and omissions of the named insured, but not for its own negligence. There is one very good reason that neither of these views is correct: they are both gross overgeneralizations. The best answer to the question of what an AI provides is, “it depends on the language of the endorsement.” This would seem obvious, but there are too many anecdotes of parties to litigation having different ideas about what AI rights are being provided. This results in work for lawyers and claims adjusters to sort out issues of actual coverage vs. intent of the contract.
AI endorsements can, for the most part, be divided into two categories:
- ISO (Insurance Service Office) – the insurance industry standard, which has many variations and varied intent
Generally, ISO endorsements furnish coverage to the additional insured for liability “arising out of” the named insured’s work, operations, or premises (or some variation of that theme). ISO endorsements are typically court tested. Manuscript endorsements may involve any number of intentions which may or may not be enforceable by state law. By adding an entity to your policy as an additional insured, you are typically protecting that entity against your company’s negligence. By having another entity add your business as an additional insured, that company is protecting you against its negligence. Additional insured status DOES NOT mean the additional insured does not need insurance. It means the additional insured has controlled the risk of others’ negligence, and can rely on its own business insurance policy to protect against its own negligence.
It is also important to note that additional insured status does not give the same rights under the policy terms as a “named insured” or “insured”. These are technical distinctions that need to be reviewed with local insurance professionals in the context of the applicable state.
Whenever your business enters into a project with another business, or contracts with another business on an endeavor, it is recommended that with regard to insurance analysis a number of general principles are followed when looking at insurance call outs:
- Never assume the other business has liability coverage. Obtain a certificate of insurance to provide a base level of assurance that the business has coverage at the time the certificate is issued by its insurance agent/broker.
- As a part of a written contract, request a copy of the additional insured (AI) endorsement and review it with your insurance professional and legal representative. As noted above, endorsements vary and simply seeing an AI reference on a certificate does not provide detail on the intent of coverage for you as an AI.
- Always read contract requirements carefully to make sure you are in compliance. If you are not in compliance, negotiate in advance of initiating services.
- Understand that you are giving something up when you give AI status to another. This may be perfectly reasonable, but it is good to understand that when you alter your coverage, you are transferring risk from others to your firm.
- Note for Engineers and Consultants: additional insured status normally does not apply to Professional Liability (E&O) claims. Since E&O is typically the major exposure for professional firms, giving AI status on General Liability may be a minor issue.
Please don’t hesitate to call us if we can help you with additional insured questions or insurance call out reviews for your contracts.
*Note: AI endorsements are also often called out for on Auto Liability, Contractor’s Pollution Liability and other insurance coverage. Most of the Auto insurance carriers now build this into the standard policy form and automatically cover other parties with an insurable interest.