The Importance of Collecting & Reviewing Endorsements
Effectively managing certificates of insurance and understanding your insurance policies are critical to mitigating risk for your company. However, tracking COIs and additional insured (AI) endorsements can be incredibly complicated 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 costly 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, risks of failing to accurately track endorsements, and how your company can mitigate risk to remain protected.
What Are Insurance Endorsements?
Endorsements can broaden or restrict the coverage on an existing insurance policy. Endorsements can be located in the ‘Exclusions’ section of an insurance policy. They’re essentially an edit to 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 (AI) endorsement extends the reach of the endorsed policy to others who do not have the policy, but who may benefit from coverage. The purpose of being an additional insured is to provide insurance coverage under the contractor, vendor, tenant, subcontractor, supplier, tenant, etc.’s policy.
For example, if you decide to work with a sub 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, your company is free from liability, and benefits from their liability insurance. Alternatively, that company may request that you add them as an additional insured on your policy, so that if you’re found at fault, they’re covered.
Why Endorsements are 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; a majority of the time an endorsement is required to comply with all of the terms. Some relationships are not always addressed in a standard contract and will need to be added or updated in order to address the new relationship.
Organizations should collect a certificate of insurance and a copy of the endorsement in order to prove that the other party’s insurance company has recognized the relationship and edited the policy to extend coverage to your organization. Ensuring that the additional insured endorsement is not only in place but also that it contains the proper wording/coverage required in a contract, is critical to protecting your organization.
Here is an example highlighting the importance of collecting and accurately reviewing additional insured endorsement wording.
- In construction, a subcontractor names the general contractor they are 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 sub’s insurance policy if they are named in a suit related to the sub’s work.
- A claim is then filed by the sub for damaged work, however it does not happen until after the project is finished.
- The additional insured endorsement in place was a CG 2010 (ongoing operations only) endorsement, which does not cover completed projects and therefore leaves the GC with no coverage under this policy.
Real-World Example of Failure to Collect & 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 does not provide coverage unless Gilbane is an organization ‘with whom’ Samson has a written contract.” Because Gilbane did not have a contract with Samson, they did not 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 name insured – can’t just rely on the phrase ‘with whom.’
As you can see from the above example, failure to collect and accurately review additional insured endorsements can be extremely costly and detrimental to an organization.
How to Ensure Your Company is Compliant & Protected
Certificate of insurance tracking solutions, like SmartCompliance, are able to 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 will be able to manage COIs and endorsements in one location, automate collection, and eliminate manual data entry. Easily 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!