August 12, 2016

3 Considerations For Additional Insured Endorsements

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We’ve discussed additional insured status in several of our previous posts because it’s an important topic for those that are contracting out services, using vendors, leasing to tenants, and so on. If additional insureds are listed incorrectly or are left off of the endorsements altogether, the consequences can be very severe and will not hold up in court should a claim be filed.

In this post, we’ll share 3 considerations for additional insured endorsements that should be carefully considered when collecting and reviewing additional insured endorsements:

1 Specify Contractual Relationship
The type of business relationship an entity has with you is very important to be aware of when considering additional insured endorsements. Most endorsements will specify the exact type of relationship in the form and in order for coverage to apply to you, your contractual relationship must match what’s spelled out in the endorsement. For instance, if you’re a landlord, you should be looking for an endorsement that covers the lessor/lessee relationship. If the endorsement you are given specifies a franchisor/franchisee relationship, you would not be covered as that is not (in this case) the applicable business relationship (a franchise versus a lease/rental agreement).

If you have a tenant and you employ a Property Manager AND your lease dictates such: you would need to have the landlord and property manager listed as Additional Insureds. If a general contractor is leasing space, it’s often easy for an insurance agent to request the wrong endorsement type and only provide an additional insured endorsement for their construction work, rather than one that is applicable to a lanlord and property manager.

2. The Details in the “Schedule”

And not only should the relationship type match, but the “schedule” (the “who” and the “where”) on the endorsements must also be completed accurately.

For example: A recent IRMKA article gives an example, “The tenant leases 102 Main Street Suite A as a store. The endorsement is issued showing the suite number in the schedule. However, business is so good that the tenant needs additional space and adds Suite B to the leased premises through an addendum to the lease. But the tenant forgets to call their insurance agent when this happens. And, you guessed it; Suite B is where the injury occurs. Again, the insurer refuses to defend the landlord. In both of these examples, the tenant is in material breach of the contract – the lease – for not providing the landlord with additional insured status as required by the lease. So, the tenant may still have to defend the landlord.”

3. Where Required By Contract, Ensure Non-Signatory Parties of the Contract are Additional Insureds

Where required by contract, parties other than the signatory of the contract need to be listed as an additional insured on the endorsement.

For example: In a construction scenario, when the owner hires the general contractor for the project, the owner gives instructions that, “any subcontractor hired on this project needs to be an additional insured.” The general contractor then hires subcontractors. However, subcontractors only have a contract with general contractor and therefore the owner may not be an additional insured, if the supplied endorsement only applies to the signatory of the contract. These endorsements are becoming more prevalent.

Similar to the above example, the same applies for architects and engineers. The endorsement may read that the signatory is the only additional insured. In this situation, another endorsement must be provided that lists every individual as an additional insured, or alternatively, have language that states “where required by contract” and specify that the additional insured status applies to all required parties, not just the signatory of the contract.

This is yet another example of why it’s so important to collect and review the endorsements for yourself instead of relying on the COI. It’s imperative to see for yourself that all relationships and individuals are listed correctly on the endorsements.

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