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Additional Insured Endorsement explained

Additional Insured Endorsement explained


By: Brent Allen    Allen Financial Insurance Group

Additional Insured Endorsements are one of the most commonly requested and often misunderstood forms in an insurance policy.  Basically, as the policyholder (Named Insured) , an additional insured endorsement extends your liability coverage to a third party to address an additional liability exposure you potentially create for him.

There are dozens of different additional forms available to your insurance policy. The specific additional insured form used is based upon the nature of your relationship with the certificate holder  e.g.  Landlord, Lessor, Franchisor, General Contractor, etc.

Now comes the misunderstanding part of the equation.  As stated above, there are dozens of AI forms each with very specific language defining a unique liability relationship.  All to often this form is perceived to be monolithic…  One endorsement for all situations.  Using the wrong endorsement form can create confusion in the event of a liability claim and potentially invalidate coverage for the AI certificate holder.

Probably the biggest misconception involves the scope of coverage offered to the certificate holder in the endorsement itself. The technical insurance explanation is “the additional insured endorsement extends coverage to the certificate holder for his vicarious liability caused by the errors and omissions of the named insured policyholder”.  Simply put the certificate holder only enjoys protection under your policy (the named insured) to the extent that you have created liability for him due to your negligence.  The additional insured does not receive the full scope of liability coverage protection you enjoy as the Named Insured.  The certificate holder is still primarily responsible for his own direct liability and negligence.

Here is an example of an actual claim.  A venue rents it’s facility to an event promoter for a one day event.  Part of the rental agreement requires the Promoter to name the venue as an additional insured in the Promoter’s policy.  During the course of the event a set of wooden bleachers collapsed under the weight of the spectators.  A spectator filed a bodily injury claim against the venue and promoter for his injury.  The Promoter’s insurance company initially accepted service for both parties and investigated the claim.  The Promoter’s Insurer then determined that the negligence was exclusively that of the venue with no contributing factors from their insured.  The Insurer then declined the claim due to no negligence on the behalf of their insured and informed the venue to contact his own insurance company. The Promoter’s insurance company would no longer offer the venue defense or liability coverage.  The insurance company for the Promoter policyholder is still legally required to provide defense and liability coverage for the Named Insured even if the claim is frivolous and without merit.

As you can see, the additional insured endorsement is part of a much larger legal contract and not to be taken lightly. This article is obviously a simple overview of the AI endorsement and it’s most common misconceptions.  You should always determine the legal relationship and intent of coverage with an insurance professional or legal council before executing a contract requiring an additional insured endorsement.  There are much more detailed additional insured articles on the internet but they can be very dry and daunting without an insurance or legal background.

Written by:
Brent Allen Allen Financial Insurance Group   800-874-9191