Additional Insured

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An additional insured is a person or entity that is added to another party's insurance policy as an insured. Parties may be included as additional insureds under liability, property or commercial auto policies. 

Contractual Requirement

When one party is added to another party's policy as an additional insured, the reason is usually a contractual obligation. For instance, a construction contract states that the general contractor must be listed as an additional insured under the subcontractor's general liability policy.

Likewise, an auto lease stipulates that the lessor must be included as an additional insured under the lessee's commercial auto policy.

Eligibility

To qualify for coverage under a commercial policy as an additional insured, a person or entity must meet certain requirements. The requirements depend on the type of coverage.

General Liability Coverage

To be added as an additional insured under a liability policy, a person or entity must fulfill two requirements. First, he or she must have a business relationship with the policyholder (named insured). Common business relationships that create a need for additional insured coverage include landlord-tenant, general contractor-subcontractor, and owner-general contractor. Secondly, the person or entity must face a risk of third-party lawsuits because of his or her business relationship with the policyholder.

For example, suppose that you lease office space from a commercial landlord.

A visitor to your business location could sustain a trip and fall injury in your office due to loose carpet. Landlords are often viewed as "deep pockets" by potential claimants. Thus, the injured person might sue both you and your landlord for bodily injury. His suit might contend that your landlord was negligent because it failed to properly maintain the building.

Landlords know that they are vulnerable to lawsuits by third parties who are injured due to the negligence of their tenants. Thus, your lease will probably require you to include your landlord as an additional insured under your general liability policy.

Auto Liability Coverage

Certain parties may be included as additional insureds under the liability section of a commercial auto policy. The requirements for coverage as an additional insured under auto liability insurance are the same as those that apply to general liability coverage (a business relationship with the policyholder and a risk of third-party lawsuits).

For example, Clint owns Classic Construction, a general contracting firm. Clint hires Professional Plumbing to do piping work in a building Classic is constructing. General contractors are not normally liable for negligent acts committed by their subcontractors. However, this rule has exceptions.

For instance, Classic could be held liable for injuries sustained by a third party in an auto accident caused by a Professional Plumbing employee, if the accident occurred while the employee was running an errand at the general contractor's request. To protect his company against auto liability claims that could result from the subcontractor's negligence, Clint ensures that Classic is covered as an additional insured under the plumbing company's commercial auto policy.

Note that Classic Construction should be covered automatically under Professional Plumbing's auto policy. No endorsement is necessary. This is because the policy contains an omnibus clause under the section entitled Who Is An Insured. The clause covers anyone who may be vicariously liable for the conduct of the named insured.

Property Insurance

To be added as an insured under another party's property policy, a person or entity must have an insurable interest in property covered by the policy. For example, suppose that you operate a business in a building you lease from Premier Properties. As the owner of the building, Premier clearly has an insurable interest in it.

Your lease requires you to insure the building under a commercial property policy that lists Premier Properties as an additional insured.

Scope of Coverage

The coverage afforded to additional insureds is usually limited in some manner. The limitations that apply may be described in an endorsement or in the policy itself.

Under a liability policy, an additional insured is usually covered only for claims that arise out of certain activities or operations performed by the policyholder. For instance, a landlord is generally covered under a tenant's liability policy only for claims that arise from the tenant's use of the leased premises. Similarly, a general contractor is an insured under a subcontractor's policy only for claims that arise from work performed on the general contractor's behalf by the subcontractor.

Under a property policy, an additional insured is covered only for its insurable interest in a specific piece of property. Premier Properties (in the previous example) is covered under your property policy for its ownership interest in the building. It is not an insured with regard to any other property covered by the policy, such as contents owned by you.

 

Article edited by Marianne Bonner