What Is an Additional Insured Endorsement?
An endorsement is an addendum to an insurance policy that broadens or restricts coverage provided by the policy.
One such addendum is an additional insured endorsement—extending coverage to a party specified by the policyholder in the event of a claim or negligent acts.
Typically someone doing business with the named insured, an additional insured endorsement has many of the same responsibilities as the named insured, but the former does not pay premiums, receive notices of cancellation, or negotiate policy terms.
For example: On a subcontractor's commercial general liability (CGL) insurance policy, the subcontractor is the named insured. As the named insured, they can designate a general contractor they are working for (and any other required entities) as additional insured on their policy by way of an endorsement. This enables the general contractor to look to the subcontractor’s insurance policy if they are named in a suit related to work.
Are There Different Types of Additional Insured Endorsements?
Additional insured status is frequently requested on a wide variety of insurance lines such as professional liability and commercial automobile insurance.
It is, however, most commonly requested on CGL insurance.
Why Do Entities Claim Additional Insured Status?
Claiming additional insured status yields a number of benefits and protections to an organization. Some of the most common include:
- Additional insured status places financial responsibility of a claim onto the party most likely to cause it
- It reduces the impact on the additional insured’s loss history. If a loss does occur due to the negligence of another party (i.e., the vendor), the additional insured can avoid asserting the claim under its own policy, thus keeping the loss history lower.
- Ensures appropriate entities are held responsible for potential risks.
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What Does an Additional Insured Cost & How Is It Added?
Adding an additional insured is the responsibility of the named insured. Individuals or entities looking to be listed as AI should make this requirement apparent in the contract.
In order to add an additional insured to a CGL insurance policy, the named insured should contact their insurance provider to typically add the name and address of the individual or entity.
The cost to add a party as an additional insured will vary depending on the provider, although it may be as little as $50. Some providers even allow policyholders to pay a flat rate for the option to add as many AIs as they would like.
Beyond the costs associated with adding the endorsement, an additional insured will also affect the policyholder’s premiums. The change in premium will depend on the nature of the endorsement—making communication with the insurance provider crucial to understand the exact total costs associated with taking on an AI.
Can an Additional Insured File a Claim?
Yes, additional insureds have the ability to file a claim in the event they are sued after a risk event.
The result of that claim, however, will be heavily dependent on the specifics of the endorsement.
Misunderstandings of what is covered and what is not can still lead to the AI being held responsible for all or part of the ensuing damages. That makes it all the more important for all parties involved to understand the specifics of the endorsement.
What Are Important Considerations of AI Endorsements?
There are two major factors to consider for review if you hope to attain adequate additional insured coverage.
1. Acquiring the Correct Endorsement Form
If you are trying to obtain an additional insured endorsement for a person or organization, you will need to know if the entity is additional insured for ongoing operations, completed operations, or both. This will determine which endorsement form is appropriate (CG 20 10, CG 20 37, etc.) and should inform your decision to either accept or reject an insurer’s proprietary endorsement.
Failing to submit the proper form could be detrimental to your company.
For example: Let’s say vendor A is doing work for company B, and company B has been named as additional insured for vendor A through the CG 20 10 (ongoing operations only) endorsement. If a claim arises after the work has been completed on the project, the insurance would not cover the claim, as that endorsement does not provide coverage for completed operations.
2. The Language of the Endorsement
Parties should carefully review the endorsement to ensure language is appropriate and provides coverage that meets expectations and contractual obligations. If the language is wrong or written ambiguously, it will affect the scope of coverage for that person or organization if a risk event occurs.
Common details to look for are exclusions to covering incidents that were not a result of the named insured’s negligence, and limitations to the amount the named insured can be held responsible in a claim.
Additional Insured Endorsements Do Not Replace Policies
While these endorsements are an important part of working with other entities, they are not intended to replace one’s own insurance coverage.
AI endorsements can have a number of limitations to coverage and such restrictions aren’t always obvious until a claim is filed.
Therefore, it is crucial business owners always maintain their own insurance policies to cover liabilities that may not be covered as an additional insured.
Streamlining Your Insurance Review & Tracking Processes
Needless to say, these nuances make for more to monitor in the vendor insurance review process—but with the right solution, tracking additional insured status, active policies, and other COI necessities can be a seamless task.
Whether you’re looking to do your own tracking or outsource to a full-service provider, modernizing your vendor management processes saves you time, money, and productivity—otherwise spent focusing on your business.
From vendor portals to automated request for proposal (RFP) broadcasting, taking your insurance review process digital empowers you to have full visibility, mitigate risks, and build better business connections.
BCS is a preeminent vendor management solution offering full- and self-service tracking to help you seamlessly hire, onboard, and manage vendors with a few clicks. To modernize your insurance review and tracking processes, contact us today or schedule a demo. Additional insured endorsements are one of the critical fundamentals to monitor when it comes to vendor insurance review.