Many contracts require that parties be added as “additional insureds,” but few contain specifics on what type of coverage should be provided. The gambit of additional insured provisions is far-ranging. Being proactive and ensuring that the additional insured coverage you are expecting is actually provided on the front end will eliminate a host of issues should you need to invoke coverage under the provision.
Additional insured coverage is normally provided by endorsement, at times listing specific entities or individuals and at other times providing blanket coverage for all that require it via contract. In theory, being included as an additional insured provides protection as if your company was a named insured on another’s policy. In reality, however, there are many variations of additional insured coverage that often contain restrictions on the rights of additional insureds under the policies.
Although your contracts may require that you receive certificates of insurance evidencing insurance coverage from the co-contracting party, certificates of insurance rarely, if ever, provide details on the specifics of additional insured coverage. In any contract where your company seeks to be added as an additional insured under another’s policy, it is a best practice that you receive a copy of the additional insured coverage provision before entering into the contract. If, however, the other party is unwilling to provide the policy language, you should include specifics in the contract to help ensure you are adequately covered.
Limitations of Activities or Products. Some additional insured endorsements limit coverage to certain loss amounts or to certain activities and products. If you are concerned about coverage for an activity your company performs or a product your company makes, be sure to include a provision that the specified activity will be included under the scope of additional insured coverage.
Primary Coverage. Some additional insured provisions provide that the additional insured coverage is “primary” and non-contributory, which means that the other party’s insurer will pay first on the claim. However, many additional insured provisions state that the coverage provided is excess to any other insurance available to an insured. Including a condition in your contract that the additional insured coverage states that it is “primary” and non-contributory coverage is helpful to preemptively avoid disputes between your primary carrier and your vendor’s carrier vis-á-vis other insurance clauses.
Ongoing and Completed Operations. Depending on the type of work your company performs, there could be potential liability to your company after the performance on the contract is completed. If so, then any additional insured coverage should specify that it is for both ongoing and completed operations, as many coverages can be limited to ongoing operations.
Coverage Provided. Several additional insured endorsements provide coverage under only certain coverage parts of the policy. For example, in many Commercial General Liability policies, additional insured provisions may only apply to claims arising from bodily injury or property damage, but not for personal and advertising injuries.
Insured vs. Insured Coverage. Many insurance policies contain exclusions for “insured vs. insured” claims, meaning that claims by one insured against another are barred by the policy. Reviewing additional insured coverage and this exclusion is essential to ensure that coverage is not barred for claims by your company against the other party providing coverage.
Additional insured coverage is common in contracts and is frequently provided by insurers, but there is a wide variation of what type of coverage is actually provided. Requiring that your additional insured coverage contains specific coverage options is an essential starting point to ensure your company is adequately covered. In addition, reviewing the coverage actually provided will permit you to catch any unique coverage aspects that could limit your additional insured status under the policy. Being proactive when your company is added as an additional insured will ensure that you obtain the coverage bargained for as part of your contract, in addition to avoiding costly coverage disputes in the event of a claim.