Understanding Additional Insureds

[B][SIZE=6]Insurance Tip #3

Do Additional Insured Endorsements Do What You Think They Do?

What you, as a contractor, must know to protect yourself from the potential of financial disaster[/SIZE] [/B]

A published article written by our very own Bonnie Bradburn

When a client requests to be named as Additional Insured on your insurance policy, do you understand what he is asking you do do? Does the endorsement do what you think it does?

Adding additional interests or additional insureds to liability coverages has become an important part of business today. Requests to add additional insureds are very common. You need to understand that naming an additional insured on your policy may impair or restrict limits of liability.

Consider the typical mercantile insured. The owner of the premises asks to be named on your policy as an additional insured for liability. Standard forms are available and the premium is normally nominal. You usually accept the endorsement without giving much thought as to how this endorsement affects your financial security.

For example, if a customer had an accident (a simple slip and fall claim while entering the store), a suit could be filed. Such litigation would normally allege building and/or safety deficiencies and would more than likely name both the building owner and you, both insured under your policy. The policy must respond equally for both you and the additional insured. Since liability policies are written on either a claims made or an occurrence basis, you have one limit of liability that must be shared with the additional insured. In the adjustment process, a settlement could be reached on behalf of the building owner and a release obtained. Such a payment reduces the occurrence limit available for remaining insureds, in this case YOU. It also reduces or depletes your aggregate limit.

When dealing with construction sites and a combination of multiple additional insureds, this process gets more complicated. There are many cases when the entire limit of liability is exhausted settling claims with additional insureds, leaving no liability limits available for you.

Please understand that when you request an additional insured be added to your liability policy, you could be eroding the limits of liability available for your own benefit.

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