Volume 3, Issue 7
Additional Insured: Naming Names
As a business owner, you may enter into relationships with other businesses, government agencies, and individuals. These relationships may expose you to risk, such as liability caused by another party’s negligence or faulty/hazardous products. “Hold harmless” agreements—provisions where one party assumes liability by indemnifying the first party—are a common way to protect your company against potential liability; however, in many situations, it may be best if you are also covered as an additional insured by an insurance policy owned by that party.
For example, suppose you are doing business as Contracting Company X, a general contractor, and you enter into a contract with Development Company Y, a high-end building company, to build 15 new homes. You hire Electric Company Z, a subcontractor, to provide the necessary wiring and other electrical work for the project. To protect you from any claims that may arise from Electric Company Z’s negligence while working for you, you may want to require Electric Company Z to list you as the additional insured on its insurance policy.
Remember that your original contract is with Development Company Y. If negligent wiring by Electric Company Z results in a fire, Development Company Y would most likely turn to you for compensation. You may be protected from this claim if you are the additional insured under the policy of Electric Company Z, the named insured.
Potential Concerns
As the additional insured under Electric Company Z’s insurance policy, you’ll want to be aware of the following four potential concerns:
1. Policy Cancellation. Electric Company Z, or its insurance company, can cancel, change, or refuse to renew the insurance policy at any time without notice to you as the additional insured. To ensure you are properly notified of such events, consider requesting an insurance certificate that provides a notice period—generally 30 days. If such notice will not be granted, request that a new certificate be presented periodically until the project or contract is complete.
2. Inadequate Liability Coverage. Electric Company Z’s liability limits may be insufficient to protect your exposure as the additional insured. Consider requesting limits that will help safeguard your interests. In addition, review your own insurance policy to ensure you have adequate liability coverage. Your status as an additional insured on another’s policy is an extra level of protection; it should not be considered a substitute for the protection you have arranged with your own insurance provider.
3. Excess Policy. An insurance company may deem your coverage as the additional insured under Electric Company Z’s policy to be in excess of the coverage under your own insurance policy. Thus, your insurance policy would be considered the primary policy for settling claims, and Electric Company Z’s policy would take effect only after your own policy limits have been exhausted. To limit your risk, consider requesting an insurance certificate that specifically states Electric Company Z’s policy is primary with respect to your status as the additional insured.
4. Other Exclusions. Coverage for hazards, such as underground construction, landfill operations, or explosives, may be excluded from Electric Company Z’s policy and could therefore negate your coverage as the additional insured. To help protect your interests, consider reviewing Electric Company Z’s policy for inclusion of this type of coverage.
Naming you or your business as the additional insured on another party’s insurance policy can help protect you from liability due to negligence or faulty products. However, it may not provide you with all the coverage you need. So, if you are listed as the additional insured on another party’s insurance policy, consult with an insurance professional to evaluate your risks and to familiarize yourself with what the policy will cover in various scenarios. For a review of your needs, contact one of our qualified insurance professionals.