Permits and Additional Insured Coverage

Professional Hollywood Film Clapper-board, being used on location.
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Many state and local governments require businesses to obtain a permit in order to perform certain tasks on government-owned property. To obtain the needed permit, a business is often required to cover the government entity under the business' liability policy as an additional insured. This article will explain the types of activities for which permits are required, and the endorsement that is used to insure government entities.

Types of Permits

A permit is a type of license. It gives the permit holder the right to use public property for a specified purpose. Many cities require businesses to obtain a permit to perform activities such as those listed below. If the activity is performed on state-owned property, then a permit may be required by the state.

  • Sign Permit Obtained by a business in order to erect a sign that extends over a sidewalk or other public right-of-way
  • Event Permit Secured by a business in order to hold a street fair, parade, party or other event on public property
  • Film Permit Required prior to filming a movie, advertisement or other production on public property
  • Encroachment Permit Required if a business plans to perform activities that will encroach on a public street, sidewalk or other right-of-way. For example, you want to repave your company's driveway. To perform the work, you will need to block access to a public sidewalk that crosses the end of your driveway.
  • Sidewalk Dining Permit Obtained by the owner of a restaurant who wants to serve customers outdoors on a public sidewalk
  • Concession Permit Required to sell food or other products in public parks or on other public property

Many municipalities offer permit applications via a government website. To obtain a permit, you must complete an application form and submit it to the agency designated in the application.

You may also be required to pay a fee.

Application is a Contract

The form you fill out to obtain a permit is a legal contract. It is a mutual agreement between you, the permit applicant, and the government agency. The form outlines the procedures you must follow to obtain and maintain a permit. For example, an application for a sidewalk dining permit may require you to submit photos of your building and a diagram of your proposed seating. 

A permit is granted for a limited time period, typically one year. To continue the activity, you must renew the permit, and pay the stipulated fee when your initial permit expires.

Many permit applications contain an indemnity agreement. While the wording varies, the agreement typically requires you to indemnify the government agency for the cost of any legal action that is filed against the agency as a result of your activities. For example, suppose you have obtained a sign permit, and the application contains an indemnity agreement. A portion of your sign breaks off during a windstorm and hits a pedestrian. The injured pedestrian sues you and the city for bodily injury. Because of the indemnity agreement, you must reimburse the city for compensatory damages and other costs assessed against the city in the suit.

Insurance Requirements

Many permit agreements require the permitee to provide evidence of general liability insurance. The agreement may specify a minimum limit of insurance you must carry. This limit is typically somewhere between $300,000 and $1 million. Depending on the type of permit you are seeking, you may also be required to provide proof of workers compensation and auto liability insurance. You can demonstrate that you have the required coverage by providing the agency a certificate of liability insurance.

In addition to insuring your company for liability, many states and municipalities require you to insure the government.

Government agencies want to be protected from lawsuits that could occur if someone is injured due to your negligence. Governments have a good reason to be concerned since many people view them as "deep pockets."

The permit agreement may cite specific additional insured language, or even a specific endorsement, which your policy must include. Some may also stipulate that the additional insured language must be primary and noncontributory.

Additional Insured Endorsement

If you are required to insure a government entity in connection with a permit, you will need to have an endorsement added to your liability policy. A standard ISO endorsement is available for this purpose. It covers a state or governmental agency (or subdivision or political subdivision) as an additional insured with regard to permits or authorizations.

The endorsement includes a schedule where the name of the state or municipality should be listed. It covers the designated entity for claims arising from operations performed by you or on your behalf for which the entity has issued a permit or authorization.

Some endorsements include a contractual limitation. This restriction applies when the additional insured coverage is required by a contract. In this event, the insurer will pay the lesser of your policy limit or the limit required by the contract. 

For example, suppose that you have just purchased a grocery store. Your store is located on a main thoroughfare in Happyville. You want to erect a new sign on the building. Before can you proceed, you must obtain a permit from the city. You fill out a sign permit application and submit it to the city. The application states that you must provide a certificate of insurance showing that you have purchased general liability coverage with a limit that is at least $500,000 per occurrence. The certificate must show that Happyville is an additional insured under your policy. The limit on your policy is $1 million per occurrence.

You contact your agent or broker to request the endorsement, and your insurer adds it to your liability policy. You put up your sign. Three months later, the sign falls down and injures a shopper. The shopper sues Happyville for $1 million. The city is covered for the suit under the additional insured endorsement. You requested the endorsement to comply with the terms of the permit agreement. The agreement is a legal contract, so the limitation applies. The limit on your policy is $1 million. Nevertheless, your insurer will not pay more than $500,000, the amount required by the contract.

If the contractual limitation appears in your endorsement, it will apply to most situations. Additional insured coverage is typically provided only because it is required by a contract. Few businesses would provide this coverage voluntarily.

Note that the endorsement described in this article should not be used to insure a government entity for which you are performing work. For example, you would not use the endorsement to cover a city that has hired your firm to refurbish a city-owned building. A different endorsement would be used for that purpose.