Author: David Griffiths, Insurance By Ken Brown, Inc., dgriffiths@ibkb.net
This article appeared in the August, 2014 issue of Florida Pool Pro
The primary reason you or your company is required to add another party as an Additional Insured (AI) to your insurance or, conversely, that you may require another party to add you or your company as an AI to their insurance is to shift the burden of risk. What essentially happens is that the AI status extends coverage beyond the basic policy forms to the requestor. The one who receives the AI status from another also receives limited insurance coverage from the other.
Additional Insured is part of every risk transfer program. Risk transfer programs are used extensively to shift risk from one party to another. If you have signed a contract which requires special insurance endorsements or coverages named Additional Insured, Waiver of Subrogation, and/or Primary Non-contributory wording you have been a part of a risk transfer program.
Additional Insured status is crucial for many companies. While the construction industry springs to mind, other examples are numerous: for example, landlords are additional insureds on tenants’ policies, and distributors and retailers are additional insureds on manufacturers’ policies.
Please note that even if you receive AI status from another entity it does not replace the need for your own insurance. You still need to carry insurance in your name as well because the AI endorsement/coverage does not cover or respond in all instances and/or to all circumstances.
In general terms the additional insured form states:
Section II — Who Is An Insured is amended to include as an insured the person or organization shown in the Schedule, but only with respect to liability arising out of your ongoing operations performed for that insured.
Take the example of a landlord situation. If a guest (customer) slips and falls inside the building in the tenant space due to the negligence of the tenant chances are both the tenant and landlord will be named in a law suit should one be brought. If the cause of the slip or fall is exclusively the tenants fault and the tenant has listed the landlord as an Additional Insured the tenants insurance policy will defend and indemnify the landlord. In this way the AI designation has transferred the landlord risk to the tenant.
In the same example, let’s say the guest tripped due to the negligence of the landlord arising out of his maintenance (or lack of), and was his responsibility. In this case the AI status from a tenant would not apply for the benefit of the landlord and the building owner would have to seek coverage from his insurance company.
So, how does the Blanket Additional Insured form differ from the standard form. Quite simply, a critical trigger for the Blanket form to apply is that the requirement of Additional Insured status must be stated in a written, signed, and executed contract.
In fact that same requirement applies to Waiver of Subrogation. As long as it is mandated in a contract the coverage will extend, assuming you have added that to your insurance program.
The advantages of the Blanket AI form are that you avoid multiple endorsements (and charges) to your insurance policy during the year. Also it is generally very cost advantageous because for a flat premium the endorsement allows for literally an unlimited number of contracts requiring AI status to your insurance.
Neither AI form nor Waiver of Subrogation extends to another entity automatically. All require the mandate of a written contract. Further, none are necessary to your insurance program unless required.
In closing, we recommend that you review every contract before signing it, preferably with legal counsel. We also encourage our clients to share a copy of the insurance requirements of any contract with us prior to execution so that we may ensure current coverage is in compliance or advise where it is not and offer options to comply.