Are you an Additional Insured or Simply Without Insurance Coverage

Insurance plays a key role with any business and its business relations with others.  While parties may have good intentions as to their respective insurance obligations, they may fail to procure the requisite insurance coverage under the parties’ contract.   When this happens, the results can be irreparable.

Insurance requirements are typically spelled out in the parties’ contract.  Insurance requirements range from procurement of commercial general liability insurance (providing coverage for personal injury or property damages), automobile insurance, and professional liability insurance.  The purpose of this posting is to alert the reader to the difference in being named as a certificate holder on an insurance certificate compared to being a covered additional insured under the relevant insurance policy.  This posting also provides some tips to avoid finding your company without insurance coverage .

Generally speaking, a certificate of insurance is merely evidence there is insurance for the policy holder, as of the issuance date of the certificate.  The certificate is likely not issued by the insurance company and may even state that it confers no rights on the certificate holder.  The insurance policy and/or endorsements, on the other hand, are the operative documents when it comes to insurance coverage.  Despite this marked difference, parties continue to incorrectly operate under the assumption that, if they are named as the “certificate holder” on the certificate, there is insurance coverage for them.

The difference between  “certificate holder” status and additional insured status is huge.  In the former case, the certificate holder likely has little or no rights in connection with the underlying policy.  In the latter case, the additional insured has certain rights under the other party’s policy, including the ability to be made whole if damages/injury occur and to have its defense costs paid in the event the parties are involved in litigation.

Additional insured coverage is simply a risk shifting method that provides for insurance coverage of one party under another’s insurance policy.  It protects the additional insured from the acts of the policy holder.  It should not be used as a substitute to obtain one’s own insurance to protect against certain claims.  Oftentimes, the parties’ contract requires one party to name the other as an “additional insured.”  This contract provision is common in the construction industry (between owners and their contractors and contractors and their subcontractors), as well with equipment leases, property leases, and service agreements.  The additional insured party can be named in the policy through a specific or blanket endorsement.

In many cases, the party who is required to name the other as an addition insured is out of business when a claim arises, is in bankruptcy, or “judgment proof.”  Making sure the required insurance is in place to cover your interests may be the difference between a huge uncompensated loss or one that is covered by insurance.

Below are some recommendations to ensure you are an “additional insured” under the requisite insurance policy and contract provisions:

• Request copies of the policy and any endorsements prior to or shortly after signing the contract;
• Review the policy and endorsements to confirm that you are an additional insured;
• Review the coverage amounts in the policies and compare them to the contractual requirements;
• When in doubt forward a copy of the policy to your attorney  to confirm the additional insured status and coverage amounts;
• If you are an additional insured, understand all of the policy requirements for notification and submission of claims.