Why Additional Insured Endorsements Matter & The 3 Most Common Types
Additional insured endorsements are confusing. Because there are so many different types of endorsements, it can be easy to get lost when navigating through insurance policies and their endorsements.
To clear things up a bit, let’s look at what endorsements are and what an additional insured endorsement is and their variations.
What is an Endorsement?
An endorsement is a change to an insurance policy that can come in the form of an exclusion, an addition, or any other change to the policy. Additional policies like optional coverage or product warranty are types of endorsements.
Endorsements can also be administrative changes made to insurance policies like changes of address or phone number.
With all the different types of endorsements, it can be confusing trying to understand what they are changing on a policy. This post is going to dive into additional insured endorsements and what different terms in these policies mean.
What is an Additional Insured Endorsement?
Additional insured endorsements are changes made to liability insurance policies that extend coverage to others not originally named on the policy; this includes the ability to make claims under the policy.
Additional insured endorsements can cover more than people, though. General descriptions also qualify as an additional insured through a “blanket additional insured endorsement.” Investopedia explains this as “an insurance policy endorsement that automatically provides coverage to any party to which the named insured is contractually required to provide coverage.”
What Does Adding an Additional Insured Mean for the Policyholder?
Next Insurance explains that when an additional insured is added to your policy, “the additional insured can turn to your insurance policy in case they are sued for your actions and are covered according to your policy.” This means your policy will payout for any claims or damages related to the additional insured.
How Much Does an Additional Insured Endorsement Cost?
In most cases, the cost of adding an additional insured to your policy is low. The cost to add an additional insured is low because most insurers consider adding additional insureds a marginal cost, but there’s some debate about what coverage an additional insured is afforded. Issues about coverage often arise when determining whether an additional insured has coverage for their negligence or only liabilities caused by the named insured.
Types of Additional Insured Endorsements
There are many types of additional insured endorsements. Having one of the below aspects to an additional insured endorsement doesn’t exclude the possibility of having another. Let’s look deeper into the three most common things found in additional insured endorsements.
Additional Insured as Required by Written Contract
One way to add an additional insured to your policy is by written contract. When going about adding an additional insured in this way it’s important to use the right wording.
The importance of wording when adding an additional insured is shown in a Massachusetts Appeals Court case where the decision was made that “the phrase ‘as required by contract, provided the contract is executed prior to loss,’ means that the contracting parties must have signed a written contract to create additional insureds.”
Let’s jump into this case to see why the wording in additional insureds endorsements are so important:
- In the case, Suffolk Company, Inc. was the general contractor for the Liberty Place construction project in Boston, Massachusetts.
- Suffolk subcontracted concrete work for the project to S&F Concrete Incorporated.
- In the contract, S&F agreed to require subcontractors to carry general liability insurance and name Suffolk as an additional insured.
- S&F subcontracted with Hallamore Corporation for the rental and operation of two cranes.
- Illinois Union, Hallamore’s insurance carrier, never received a request to add Suffolk or S&F as additional insureds.
- One of Hallamore’s employees was injured on the job site and the employee sued Suffolk and S&F.
- Suffolk and S&F called upon Illinois Union to defend them and Illinois Union requested to see the written agreement stating Hallamore was to make Suffolk and S&F additional insureds, but none existed.
- Suffolk and S&F argued that the documents they had formed an oral agreement, but Illinois Union denied a defense.
- The issue was brought to court, and the judge ruled that “the parties had not accomplished an ‘executed’ contract as required by the endorsement; that an alleged oral agreement did not satisfy the requirement.”
In conclusion, parties must complete a signed written agreement requiring third parties to include general contractors as additional insureds.
Primary and Noncontributory
When adding an additional insured, it’s common to have the terms “primary and noncontributory” somewhere in the policy. These terms get tricky when put together so let’s break them down and see what each one means.
The term “primary” in this phrase is straightforward – meaning you, the one adding an additional insured to your policy, are providing coverage and your policy will pay before any other policies do.
On the other hand, “noncontributory” is more difficult to explain. According to IRMI, “noncontributory as included in ‘primary and noncontributory’ is generally understood to mean that contribution will not take place – there will be no contribution.”
When put together it’s understood that when adding an additional insured, primary and noncontributory means this is the insurance policy that will payout and the insurer has waived their right to ask for a contribution from the additional insured’s carrier.
Ongoing & Completed Operations
The terms ongoing and completed operations are important in additional insured contracts because they determine the duration of the coverage. Let’s look at what each one means.
Ongoing operations means there’s work in progress. When the term ongoing operations are present, it means the additional insured is afforded coverage while work on the project is in progress.
The term completed operations extends coverage to the additional insured past the date of project completion. If a loss occurs related to the project after it has been completed, the additional insured still has coverage for that loss.
In some cases, states have stepped in to define when completed operations coverage ends because it can be unclear.
Why do Endorsements Matter?
Endorsements, especially additional insured endorsements, are important in insurance policies. Endorsements allow policies to be changed so insureds don’t have to buy a new policy every time their business location changes, or they begin work with a new subcontractor and so much more.
Endorsements expand the scope of what an insurance policy covers and should not be looked past when changes need to be made.
How Can I Keep Track of Policy Endorsements?
Now that you have seen the importance of Endorsements, you probably are wondering if there is an easy, safe, and efficient way to manage them. Luckily, there is!
With a certificate of insurance (COI) tracking solution like SmartCompliance, keeping track of your endorsements is simpler than ever.
When an endorsement is added to your insurance policy, all you have to do is request a new COI to reflect the updated policy.
Schedule a free demo to see how SmartCompliance can help you keep track of your insurance policies and increase compliance.
