The 101 on Additional Insureds
To understand what an Additional Insured is, let’s clarify the two types of Insureds you’ll see on a policy—Named Insureds and Additional Insureds.
Named Insured
A Named Insured—typically shown on the declaration page as the policyholder—has all the rights and privileges afforded by the policy for their own legal liability. An Additional Insured only has rights if named in a suit arising out of the legal liability of the Named Insured.
Insureds are often asked to add their customers or other related parties (e.g. landlords) as an Additional Insured onto their own policy.
In most instances, insurers are willing to oblige requests to add additional insureds to their policy—as long as the Additional Insured shares an exposure from the Named Insured’s products or operations. For example, a sub-contractor electrician adding the general building contractor as an Additional Insured onto the electrician’s liability policy.
The insurer will want to restrict coverage for the Additional Insured only to the operations and/or products of the Named Insured, such that the wording of the Additional Insured endorsement does not extend to provide coverage for the operations or products of the Additional Insured.
Additional Insured
Additional Insureds are often added for little or no additional premium as there should normally be little or no increase in exposure to the Named Insured by their addition.
However, the exposure to the insurer in adding an Additional Insured can be substantial in some cases. Recent court decisions have found that the Named Insured shall be obligated to provide a defense to the Additional Insured in situations where there may be a conflict between the two parties. This could even require paying for separate counsel if one lawyer can’t properly represent both parties.
Additional Insured requests are a standard day-to-day occurrence in commercial insurance, making it important for the Underwriter to have an understanding of the relationship between the Named Insured and Additional Insured including any potential increased exposures that an additional insured could pose for the named insured.