Contractors and Business Owners, have you ever had someone request that you provide a certificate of insurance showing that THEY are named as an "Additional Insured" on your liability insurance? This is a frequent request that comes from general contractors, property owners, landlords and others.
First, it is important to understand that a Certificate of Insurance is an instrument that only provides a snapshot of coverages and limits contained in an insurance policy. It does not change anything in the policy. So, in order to issue a Certificate of Insurance showing this person or firm as an additional insured, the policy must be amended (endorsed) to add the "Additional Insured" coverage. The cost of an adding an Additional Insured varies depending on the insurance company and the type of Additional Insured - usually between $25 and $100 (or more) per year for each Additional Insured.
Many insurance companies offer a way to add Blanket or Automatic Additional Insured coverage. With this Blanket Additional Insured coverage in your policy, any time a contract requires you to name another party as an Additional Insured, the coverage is automatically provided. This method has some limitations but it will work well in the majority of instances.
When adding another person or firm to your policy as an Additional Insured it is important to understand that the scope of insurance for "ongoing operations". In other words, for exposures that arise while you are working at their premises. Once the job is complete, the your insurance ceases to provide coverage for the Additional Insured. We are seeing contracts that now require contractors to fill this gap by purchasing additional endorsement to the standard Additional Insured coverage that extends the products and completed operations insurance to protect the Additional Insured even after your work is completed. The point here is that it is very important to read and understand any contract you are asked to sign - before you sign it!
A couple examples where this could apply are as follows:
ABC Company leases a building. The landlord requires ABC Company to add him as Additional Insured. Someone visiting the store slips, falls and is injured. They then sue ABC Company as the business owner AND the landlord because they own the building where the accident occurred. Having the landlord as an Additional Insured on ABC Company's policy will provide coverage for the landlord on ABC's policy. Note that this does not relieve the landlord from the need to have his/her own liability insurance.
Peter the Plumber works as a subcontractor for GC General Contracting on new home construction. GC General Contracting's contract requires Peter the Plumber to name them as Additional Insured. During the course of the job, Peter the Plumber carelessly leaves some materials or equipment laying around and a 3rd party is injured as a result. Since the injury was a result of Peter the Plumber's negligence, Peter the Plumber's liability insurance will also provide coverage for GC General Contracting if legal action is brought against them.
Image courtesy: Joroen van Oostrom / freedigitalphotos.net
If someone wants to be named as an Additional Insured in your insurance, be sure to understand why they are requiring because it can cost you additional premium AND it can also dilute your insurance. If your insurance covers YOUR company and now an ADDITIONAL company is added, you have not changed the amount of insurance you have...only the number of companies that are covered. In other words, if your policy limit is $500,000 and you add an Additional Insured, the policy limit is still $500,000 - not $500,000 for each entity.
If in doubt, you can always call us at 800-220-5582 or contact our office for assistance. We will often ask for a copy of your contract in order to determine whether or not your insurance meets the contract requirements.