Additional insured endorsements are amendments to insurance policies that extend limited coverage to entities not already named on the policy. Typically, the additional insured is a person or organization that could benefit from the protections the policy offers like companies that hire contractors. As an additional insured, the hiring company is protected if the contractor makes a mistake.
Some carriers charge extra for every additional insured endorsement attached to a policy, usually between $25 and $100. However, most also offer blanket additional insured endorsements that automatically grant additional insured status to anyone the policyholder is obligated contractually to cover. This is usually less expensive than purchasing endorsements one at a time.
What an Additional Insured Endorsement Covers
Granting someone additional insured status does not necessarily mean that an individual gets all of the protection the named insured gets. However, most additional insured endorsements cover lawsuits brought by clients and customers by paying for the additional insured’s legal defense as well as court awards and settlements.
The coverage is usually limited by the endorsement’s language. One of the most important limitations to note is that additional insureds are covered only for liability created by the actions of the named insured. If the insurance carrier determines the additional insured’s negligence is the source of a claim, then the carrier won’t cover the damages.
Additional insured endorsements may vary among insurance carriers, and coverage is contingent on state laws and enforcement.
Who Needs An Additional Insured Endorsement
An additional insured endorsement is one of the most common endorsements found in small business insurance. Any business owner who rents commercial space, owns property financed by a lender, or contracts with larger companies has probably been asked to add someone as an additional insured to a general liability or professional liability policy.
Common situations that call for additional insured endorsements include:
- Signing a commercial lease: Landlords often ask tenants to purchase commercial property insurance on the leased space with the landlord named as an additional insured. This provides the landlord with more protection if the tenant causes damage to the property.
- Hiring contractors: Business owners who hire contractors may want to be named as additional insureds on the contractor’s liability insurance. If the contractor’s actions lead to a lawsuit, the business owner can file a claim on the contractor’s insurance rather than on her own policy.
- Selling products: Some manufacturers offer additional insured status to encourage businesses to sell the manufacturers’ products. The sellers then know that product liability lawsuits are covered under the manufacturer’s insurance.
The named insured is the person or persons who maintain all the rights and coverages of an insurance policy and is often the primary policyholder. The additional insured may have many―if not all―of the same coverages as the named insured but is not in control of the policy decisions. They are unable to make adjustments to the policy in terms of coverage, effective dates, and naming other insureds.
The Cost of an Additional Insured Endorsement
Additional insured endorsement typically costs between $25 and $100, depending on the carrier. Some carriers do not charge extra while others may charge a fee every time you add an additional insured.
The main factor affecting the costs is the amount of risk added to the policy. If your carrier sees the additional insured as introducing substantially more risk, then it may deem the policy more expensive to maintain.
How to Get Additional Insured Endorsements
Because so many situations require additional insured endorsements, the process for getting one is usually fairly simple. First, you review your coverage with the agent who sold you the policy to see if granting the individual additional insured status is a good idea and how much coverage the additional insured should get. Then, you fill out a short form that’s essentially an application for the endorsement.
There are several different kinds of additional insured endorsements, so you need to be very clear about what your relationship is with the person requesting additional insured status. For example, some situations may call for an endorsement that protects the additional insured only when work is being performed while others need coverage for completed operations too. Each situation is covered by a different endorsement and requires a different form.
Additional Insured Examples by Policy
Business owners can request additional insured endorsements on a variety of commercial policies. The most common request is to add additional insureds to a general liability policy, but business owners may also add additional insureds to business property and commercial auto insurance.
General Liability Insurance
General contractors often ask subcontractors for additional insured status on the subcontractor’s general liability insurance policy. Then, if the general contractor is named in a lawsuit stemming from the subcontractor’s work, the general contractor can file a claim on the subcontractor’s general liability.
Commercial Property Insurance
Probably the most common situation business owners need to get an additional insured endorsement on their property policy is when they rent commercial space. Property owners often want to be additional insured on their tenants’ policies in case a tenant causes damage. Many commercial leases also require tenants to add landlords to their general liability insurance too. This protects the landlord if they’re named in a liability lawsuit over something like a customer’s slip and fall.
Commercial Auto Insurance
Many small business owners who purchase a vehicle for their businesses often get commercial auto insurance with a blanket additional insured endorsement. The endorsement covers any employee who drives the business-owned vehicle without naming each individual in the policy. This way, the business owner doesn’t have to get a new endorsement every time they hire someone.
Additional Insured Frequently Asked Questions (FAQs)
An additional insured endorsement is a common practice for many small business owners and second nature to insurance providers. However, it can still be confusing with many other terms and policy conditions. Below are answers to some of the most commonly asked questions regarding additional insureds.
What is a blanket additional insured endorsement?
A blanket additional insured endorsement is an add-on to an insurance policy that grants additional insured status automatically to an entity whenever the named insured is contractually obligated to grant it. The named insured does not have to list every individual who requires additional insured status on the endorsement, nor does the named insured have to get an endorsement for each request.
What is the difference between a certificate holder and an additional insured?
The certificate holder is the person or entity that demands proof of insurance for a project or contract. The proof of insurance can be provided via a certificate of insurance (COI), but a certificate holder does not enjoy any protection under the policy. Meanwhile, an additional insured has rights in a claim covered by the insurance policy.
Is the additional insured entitled to a copy of the policy?
The additional insured is entitled to a copy of the policy terms and conditions usually with the premiums redacted. The additional insured may also obtain a COI that states all the coverage protection and policy terms pertinent to the additional insured. The COI could include multiple lines of insurance like general liability, commercial auto, and workers’ compensation.
It usually isn’t the choice of a small business owner to place an additional insured on an insurance policy. While you may be required to have one, make sure you have the correct additional insured endorsement that protects everyone from liabilities but doesn’t cost you more than it should.