75 percent of businesses in the United States are severely underinsured. Are you one of them? One key area where you might be leaving yourself open to risk is not having the proper additional insured endorsements.
If you aren’t familiar with that term, don’t worry—we’ve got you covered. Here’s what you should know about additional insured endorsements and how they work.
What Is an Additional Insured Endorsement?
When you take out a general or professional liability policy, it covers your company, yourself, and your employees while they are either at your place of business or carrying out work on your behalf. But as much as 38 percent of all businesses also work with independent contractors. Standard liability policies don’t cover them because they’re not considered employees.
However, that doesn’t mean that they can’t put your company at risk. Poor work from an independent contractor can leave you open to significant losses and even lawsuits. And that doesn’t even get into other companies and organizations you might work with.
Additional insured endorsements are meant to fill this gap. They are placed on the current liability insurance policy of the other party, extending coverage to you. This ensures you’re covered should the products or services sold to you result in problems for your business.
How an Additional Insured Endorsement Works
In most situations, the “upstream” party is added to the policy of the “downstream” party. In other words, the business—you—will usually be added to the policy of contractor, vendor, or service provider. Should the party with the additional endorsement sustain significant losses or lawsuits related to the services or products provided by the primary insured, a claim can be filed. However, it’s critical that both parties carefully read the language of this endorsement, as in many cases, they don’t provide full coverage.
Signs You Need an Additional Insured Endorsement
If you already have a liability policy, getting additional insured endorsements may seem like more work than they’re worth. However, additional coverage is rarely a bad thing for business owners. Here are signs you’re better off getting the endorsement than forgoing it:
You rely heavily on independent contractors, outside service providers, and vendors to run your business.
The services or items you get from these entities have a significant impact on the quality of services or products your business offers.
Any of your services or products related to these outside entities could have a significant impact on the health or financial well-being of your customers.
You don’t want to risk having to file a claim using your own policy and having your premiums jump.
You know that you couldn’t financially recover from a lawsuit or other losses if an outside entity does something to compromise your business.
You have a tenant that is leasing space in a building that you own. You always want to be added as an additional insured when leasing space to a third party.
How to Get an Additional Insurance Endorsement
Your additional insurance endorsement is part of your business agreement with the other party. As such, it should be spelled out in your contract with them, and you shouldn’t use their products or services until you’re presented with proof of coverage.
In many cases, the other party’s liability policy will automatically extend coverage to anyone who signs a contract with the insured that has a clause regarding additional insured endorsements. If this is the case, documentation of their policy with this language highlighted is the proof you need. However, they may need to actively add you to their policy, in which case you’ll want to see documentation of your name or business having been added.
It is also good practice to request a 30-day notice of cancellation, also known as a 30-day NOC, along with the additional insured documentation. This will notify you as the certificate holder and additional insured if your independent contractor, service provider, or vendor has their Liability policy go into cancellation, 30 days before it is set to cancel.
If you’re adding someone as an additional insured under your own policy, you’ll need to check to see if they are automatically covered through your contract with them. If not, you’ll need to get their names and addresses and then contact your insurance provider. With this information, they can be added to the policy.
Common Pitfalls to Watch Out For
Getting an additional insured endorsement provides additional coverage, but that doesn’t mean that everything will be smooth sailing. In fact, additional insured endorsements can get pretty complicated. Some pitfalls you need to watch out for include:
Timelines that restrict coverage to when there are ongoing operations, meaning that if a claim is filed after operations have ceased, you’re out of luck.
Restrictions on coverage, such covering property damage but not loss of income.
A lack of coverage when the negligence is determined to be solely on the part of the additional insured.
A clause stating coverage is only as much as is in line with anti-indemnity statutes in the state.
Language that limits coverage to that stated in the contract between the insured and the additional insured.
A coverage limit that does not provide the level of security needed.
While additional insured endorsements help protect your business, you must examine the coverage and know its limitations. Typically, each additional insured endorsement is a separate cost to the policyholder adding an additional insured.
If you are an independent or sub-contractor who will get many requests to add additional insureds, it is best to seek a blanket additional insured endorsement for a flat annual fee, opposed to paying for each one to get issued. This also streamlines the process as your agent can add them as soon as requested and will not have to wait for carrier approval for each AI requested.
How Leap | Carpenter | Kemps Insurance Agency Can Help
At Leap | Carpenter | Kemps Insurance Agency, we’ve guided countless clients through the hassles of both getting and adding an additional insured endorsement. Contact us today to find out more.
Mike Dwyer is a Commercial Insurance & Risk Advisor, who specializes in Group Captive Insurance, and specialty insurance and risk management solutions for businesses in the construction industry.
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Leap | Carpenter | Kemps Insurance Agency provides Commercial Business Insurance, Employee Benefits, Life and Health Insurance, and Personal Insurance to all of California, including Merced, Atwater, Los Banos, Mariposa, Madera, Fresno, Modesto, Turlock, and Stockton.
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