Insured, Named Insured and Additional Insured

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Liability insurance policies use various terms to identify the people or entities that are covered under the policy. These include named insured, insured, and additional insured. Like many policyholders, you may find these terms confusing. This article will explain what they mean.

Named Insured

The named insured is the person or entity listed in the policy declarations. The named insured may be a corporation, partnership, sole proprietorship or other type of entity.

Compared to other insured parties, the named insured is afforded the broadest scope of coverage under the policy. Many policies refer to the named insured as you.

Most small businesses consist of one company only. For example, Smith Manufacturing Inc. is a private corporation owned by five members of the Smith family. Smith Manufacturing Inc. is the legal name of the business. Thus, the corporation is listed as the named insured on the firm's general liability, commercial auto and umbrella policies.

Multiple Named Insureds

Some businesses consist of more than one entity. Most liability insurers will list multiple entities on a single policy if one entity holds a majority interest (at least 51% ownership) in the others. For instance, suppose that the owners of Smith Manufacturing Inc. create a second company called Smith Sales Inc. The sole purpose of Smith Sales is to sell products made by Smith Manufacturing.

Because the two corporations have common ownership, they may be insured under the same liability, auto and umbrella policies.

Named Insured's Duties

Many liability and auto policies impose specific obligations on the named insured. For instance, general liability policies typically require you to report claims or occurrences to your insurer.

Similarly, the standard commercial auto policy stipulates that you must notify the police if an auto has been stolen.

Liability policies often assign specific duties to the first named insured, meaning the entity listed first in the declarations (if the policy includes more than one named insured). In the ISO general liability policy, for example, the first named insured is obligated to keep records of information the insurer needs to calculate the premium. The first named insured must provide this information whenever the insurer requests it.

Insured

The term insured is a generic word used to describe any person or entity that qualifies for coverage under a policy. The named insured is an insured.

Most liability policies automatically cover certain parties as insureds. Examples are employees, partners and executive officers. These individuals are insureds only while they are doing their job for the named insured. For example, employees are insureds only while performing their duties as employees of the business named on the policy. They are not insureds while engaged in personal activities off-the-clock. Likewise, partners of a partnership named on the policy are insureds only while acting as partners of that organization.

They aren't insureds for acts they commit outside their role as partner .

Commercial auto policies also provide automatic coverage for various insureds. For instance, most policies extend auto liability coverage to permissive users of covered autos that are owned or hired by the named insured.

Additional Insured

The term additional insured means a party that has been added to a liability policy as an insured, usually  via an endorsement. To qualify for coverage as an additional insured, a person or entity must have a business relationship with the named insured. Moreover, the named insured's business activities must create a risk of third-party lawsuits against that party.

For example, suppose that Busy Builders, a general contractor, has hired Perfect Piping, a plumbing contractor, to install water lines in a new stadium Busy is constructing.

A Perfect Piping employee could inadvertently cause an accident at the job site, injuring a third party. The injured person might sue both the plumbing contractor and the Busy Builders for bodily injury. Consequently, the contract between Busy and Perfect Piping requires the plumbing contractor to include Busy as an additional insured under Perfect Piping's general liability policy.

Additional insured endorsements provide limited protection. Coverage is tied to the premises, work, or services that are the focus of the business relationship between the additional insured and the named insured. For instance, a general contractor is typically covered only for claims arising from negligent acts committed by the named insured (subcontractor) while performing work for the general contractor. To be covered, claims must generally involve negligence on the part of the named insured.