What is an Additional Insured Endorsement? And why do I need it on my business insurance policy? These are very common questions. So common in fact, that if I got a burrito every time I was asked these questions… let’s just say I would be wearing much bigger pants.
As a business owner, the need to provide an Additional Insured Endorsement is often what prompts you to look at getting General Liability Insurance in the first place. This is when I get the phone call….
So what is this thing, the mysterious Additional Insured Endorsement? First, I’ll explain what an endorsement – any endorsement – on an insurance policy is. An endorsement is simply an addition, deletion, or other change to your insurance policy. If you ever replaced a vehicle on your auto insurance policy, that change to your policy was an endorsement.
An Additional Insured Endorsement is, therefore, when some person or other legal entity is added on your policy as someone who is also insured. Once someone becomes an Additional Insured, that someone is also covered – just like you are (for certain situations) – and can also file a claim on your policy.
You might now be asking how anyone could have the audacity to request to be covered on your policy. Shouldn’t they just get their own policy?
The answer is yes, they should get their own General Liability policy that covers them for their negligence, BUT: when they have reason to believe that they could be held liable for something that YOU could do (this is called vicarious liability), they would rather be covered on your policy, and that is when they want the Additional Insured Endorsement.
This is a method of transferring risk and it is actually very common in the business world. You present additional risk to them, so they require that you transfer that risk back to yourself.
Here’s one example: If you are a tenant in a commercial building, your landlord will often require you to list him as an Additional Insured on your policy. He wants to make sure that if someone slips, falls and injures himself in your unit, and they sue him for your actions, he can find coverage on your policy rather than his own. Yes, this really happens. The landlord will get dragged into the lawsuit for the actions of the tenant.
Another situation where Additional Insureds are common is upper tier contractors and their subcontractors on construction projects. The upper tier contractor (also known as the general contractor) will want to make sure that each of his lower tier contractors (also known as subcontractors) lists him as an Additional Insured on their policies. Let’s say a home builder is building a new house. He may do one or two operations, like the foundation and/or framing, but he will sub out the rest of them, like roofing, plumbing, electrical, etc. In order to protect himself from the negligent actions of the subcontractors, he will require that the subs list him as an Additional Insured on their general liability policies. That way, if the electrician accidentally burns the house down, and the homeowner sues the general contractor, he will hand the papers downstream to the electrician and get coverage there first.
And there you have it. This is the purpose of the Additional Insured Endorsement: to protect someone else on your policy from your actions. Or if you’re on the other end: to protect yourself from the actions of others that affect you.