Not a very exciting title for a post.
There are two times when a business cheifly interacts with its insurance company:
- At the start of the policy and during the application process when the business is purchasing the policy; and,
- When the company, through its operations, must add another entity to its policy as an additional insured.
The status of "additional insured," while demanded in a rote fashion in commercial contracts around the world, is not widely understood by most business owners. In the typical scenario the business has secured a lucrative contract with a larger company. The larger company sends over a contract the smaller company must agree with in order to do business with larger company. In the contract, larger company demands additional insured status. Smaller company calls its insurance professional and the agent or broker takes down some information and sends a facsimile later with an insurance certificate for smaller company to present to larger.
The issue of what rights this extends to larger company, or what coverage is diminished to smaller company, and what practical effect this agreement has, is seldom considered.
Look at your contracts, consider the "additional insured" demand, consider your chief sub-contractors - what do their business insurance policies actually state? Look at the contracts your company signs with larger companies - does your company know what it is offering when it agrees to add an "additional insured?"
Insurance is very much misunderstood and when a client get’s into trouble, it’s usually the agents fault. (In the customers opinion.)
Whether you’re looking to insure commercial buildings, contents, automobiles, interruption, crime, liability or other exposures for your business – finding an insurance company that fits your specific needs is so important.
Once you find your match its always great to revisit your insurance policies on a regular basis. In the event of any change you can then make sure you’re always prepared and you’ll hopefully avoid any surprises in the event you need to turn to your insurer!
I own a small commercial insurance agency in California and I noticed that the number of additional insured requests has increased dramatically over the last 15 years. Companies that request an additional insured certificate think that they are protected by the vendors insurance company in case of a claim. The reality is that becoming an additional insured only offers you legal defense in case of a claim. If it is found that the additional insured was responsible for causing the claim the insurance company will not pay out on the claim. Additional insured status only offers legal defense. Also, keep in mind that the additional insured certificate only shows basic information about the policy. It does not tell the additional insured the terms, conditions and exclusions contained in the policy. An additional insured should always ask to see the policy forms to make sure that there is adequet coverage and terms.
Not only does an additional insured get legal defense but the insurance company will have to pay a part of the claim to the extent it was caused by the contributory negligence. of the additional insured . This could happen even if the AI’s negligence was 99% responsibile for the claim.
AI status is a lousy business decision by insurance companies. Free insurance for AI’s without any due diligence whatsoever being taken by the insurance company on the AI.
AI status needs to be eliminated and tossed out onto the trash heap of bad insurance.