The Importance of Collecting & Reviewing Endorsements
Having an effective system for managing COIs (certificates of insurance) and understanding your insurance policies is critical to mitigating risk for your company. But, tracking COIs and collecting and reviewing endorsements by hand is difficult and time-consuming, which leads many insurance professionals to put off or overlook these processes. Failing to collect and review COIs and endorsements increases the risk of underinsured claims, failed audits, and expensive lawsuits.
Confused by additional insured endorsements and why they’re important to track, collect, and review? We’re here to help. We put together a quick overview that outlines insured endorsements, the risk of failing to accurately track endorsements, and how your company can mitigate risk to remain protected.
What is an Insurance Endorsement?
An endorsement is an edit to an existing insurance policy. Endorsements are in the ‘Exclusions’ section of an insurance policy and, their purpose is to broaden or restrict the coverage on an existing policy.
One example of an endorsement that broadens the “Who is an insured” on the policy is an additional insured endorsement. An additional insured endorsement extends the reach of the endorsed policy to others who don’t hold the policy, but who may benefit from coverage. The purpose of being an additional insured is to have insurance coverage provided under the contractor, vendor, tenant, subcontractor, supplier, etc.’s policy.
For example, if you decide to work with a subcontractor or a vendor, it may be in your best interest to have that company add you as an additional insured on their existing insurance policy. This way if they’re found at fault, you and your company are free from liability, and benefit from their liability insurance. When you’re added as an additional insured, that company may request you to add them as an additional insured on your policy, so if you’re found at fault, they’re covered.
Why are Endorsements Important?
Now that we’ve reviewed what endorsements are and what they provide, let’s dive into their importance at your organization.
While a standard insurance policy can address most of the terms of an agreement like obtaining appropriate coverage; most of the time an endorsement is the only way to comply with all of the terms. Some relationships are left unaddressed in a standard contract. To make sure new relationships have the proper coverage, endorsements include or update them as part of the contract.
Organizations should collect a COI and a copy of the endorsement to prove the other party’s insurance company has recognized the relationship and edited the policy to extend coverage to your organization. Ensuring the additional insured endorsement is in place and that it contains the proper wording/coverage required in a contract is critical to protecting your organization.
Here’s an example highlighting the importance of collecting and reviewing an endorsement’s wording to make sure it’s correct.
- In construction, a subcontractor names the general contractor (GC) they’re working for as an additional insured on their commercial general liability (CGL) insurance policy by way of an endorsement.
- This allows the GC to lean on the subcontractor’s insurance policy if they’re named in a suit related to the subcontractor’s work.
- The subcontractor files a claim for damaged work, but not until after the project ends.
- The additional insured endorsement in place was a CG 2010 (ongoing operations only) endorsement, which doesn’t cover completed projects and thus leaves the GC with no coverage under this policy.
Real-World Example of Failure to Collect and Review Endorsements
This IRMI article gives a great real-world example of an additional insured claim:
- Gilbane Bldg. Co/TDX Construction Corp. and Samson Construction were hired by the Dormitory Authority of the State of New York (DASNY). During the construction project, Samson’s excavation and foundation caused other buildings to sink. DASNY filed a suit against Samson and the architect for the damage. The architect brought a claim against Gilbane/TDX.
- The New York Court of Appeals interpreted the language of the policy’s additional insured endorsement and determined Gilbane Building Co./TDX was not an additional insured under prime contractor Samson. They found that the “Additional Insured-By Written Contract” endorsement of Liberty Insurance Underwriters policy was “facially clear and doesn’t provide coverage unless Gilbane is an organization ‘with whom’ Samson has a written contract.” Because Gilbane didn’t have a contract with Samson, they didn’t have coverage under the endorsement.
- In other words, to be successful on a claim for additional insured coverage, the purported additional insured must have a direct written contract with the named insured – they can’t depend on the phrase ‘with whom.’
As you see from the above example, failure to collect and review additional insured endorsements is expensive and sometimes detrimental to an organization.
How to Ensure Your Company is Compliant & Protected
Certificate of insurance tracking solutions, like SmartCompliance, can help you manage all aspects of the COI process and minimize the chance of assuming unintended risk.
Our easy-to-use, web-based COI tracking software makes staying compliant effortless. With our platform, your company can manage COIs and endorsements in one location, automate collection and end manual data entry. You can even upload, organize, and search endorsements or COIs to guarantee insureds are compliant and ensure subrogation coverage for your company.
Interested in learning more about our insurance tracking services, or want to see SmartCompliance in action? Request a free demo today!