The Basics of Additional Insured Endorsements
While additional insured (AI) endorsements are common in third-party contracting, their logistics can be a bit complicated.
As they extend liability coverage to parties not otherwise insured by the policy, there are several benefits and risks involved with adding an additional insured.
This guide reviews the most common questions and information about AIs to help you make an informed decision about whether to list them on your policies.
What Is an Additional Insured Endorsement?
Endorsements are insurance policy addendums that broaden or restrict coverage.
One of these is an additional insured endorsement, which extends coverage to a party specified by the policyholder in the event of a claim or negligent acts.
These entities usually have some degree of liability due to their relationship with the named insured. However, while an AI has many of the same responsibilities as the policyholder, they do not pay premiums, receive notices of cancellation, or negotiate terms.
For example: On a subcontractor's commercial general liability (CGL) policy, they are the named insured, and can designate a general contractor they are working for as an AI (along with any other required entities). This enables the general contractor to look to the subcontractor’s insurance policy if they are named in a work-related suit.
Are There Different Types of Additional Insured Endorsements?
Additional insured status is often requested on a variety of insurance lines such as professional liability and commercial automobile insurance.
However, it is most commonly requested for CGL insurance.
Why Are Additional Insured Endorsements Important?
Claiming additional insured status provides several benefits and protections for organizations, some of which include:
- Responsibility: It places financial responsibility for a claim on the party most likely to cause it.
- Loss History: It helps protect loss history. If a loss occurs that’s the responsibility of the vendor, the AI can avoid asserting the claim under their own policy—keeping loss history low.
- Risk Mitigation: It holds appropriate entities responsible for potential risks.
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What Does an Additional Insured Cost & How Is it Added?
Given that it’s the named insured’s responsibility to add AIs, those looking to be listed should note it in their contract.
To add an AI to a CGL policy, the named insured should contact their insurer and provide the party’s name and address.
The cost to list an AI varies depending on the insurance company, but can be as low as $50. Some insurers even permit policyholders to pay a flat rate and add as many as they would like.
Beyond the initial costs, adding the endorsement will also affect the policyholder’s premiums. To understand the total costs naming an AI will have on premiums, contact your insurer.
Important Considerations for Additional Insured Endorsements
There are two major factors to consider when listing an AI.
1. Submitting the Correct Endorsement Form
Begin by understanding whether the party will be covered for ongoing operations, completed operations, or both.
This will determine which form is appropriate (CG 20 10, CG 20 37, and so on) and inform whether you should accept or reject an insurer’s proprietary endorsement.
Submitting the incorrect form could result in a lapse in coverage.
For example: Let’s say vendor A is doing work for company B, and company B has been named an additional insured for vendor A through the CG 20 10 (ongoing operations only) form. If a claim arises after the project has been completed, the insurer would not cover the claim, as that endorsement does not include coverage for completed operations.
2. Endorsement Language
Carefully review your endorsement’s language to ensure it accurately reflects coverage and contractual requirements.
If language is incorrect or ambiguous, it will affect the scope of coverage for the AI if an incident occurs.
Look for common details such as:
- Exclusion of coverage for claims not resulting from the named insured’s negligence
- Limitations to the extent a named insured can be held responsible in a claim
Can an Additional Insured File a Claim?
Yes, additional insureds can file a claim if they are sued after an incident. However, the results of the claim often depend on the specifics of the endorsement.
To ensure appropriate parties are held responsible, verify all involved understand what’s covered by a policy. Any misunderstandings about coverage can result in AIs incorrectly being held responsible for all or part of the claim.
Additional Insured Endorsements Should Not Replace Policies
While these endorsements are an important aspect of third-party partnerships, they should not replace insurance coverage.
AIs can have several coverage limitations and restrictions that are not always obvious until a claim is filed.
Business owners should have their own insurance policies to cover liabilities that may not be included as an AI.
Simplifying Your Insurance Tracking Process With bcs
While tracking additional insured status, active policies, and other COI necessities can be an involved process, the right solution makes it a seamless one.
Whether you’re looking to do your own tracking or outsource to a full-service provider, bcs’ fully integrated solution encompasses all aspects of third-party management—from automated request for proposals (RFP) to vetted hiring and onboarding.
By centralizing all your vendor processes, you can streamline COI tracking, mitigate risks, and form safer business partnerships.
bcs is a leading COI tracking solution with full- and self-service options to help you easily hire, onboard, and manage vendors with a few clicks. To simplify your insurance tracking process with bcs, contact us today or schedule a demo.
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