I GOT YOU COVERED: Part I — Obtaining Insurance as an Additional Insured

“I got you, Babe.”  It’s not just the title of a 1965 Sonny and Cher hit—it also aptly describes the relationship between a named insured and its additional insured.  To clarify, an additional insured may be able to access the coverage provided by the named insured’s liability policy if the additional insured is potentially liable for a claim that relates to the named insured’s operations or premises.  For a startup company, additional insured protection can be extremely beneficial, particularly if the additional insured doesn’t have to tap its own insurance or other resources to pay a claim.  And, although there are a few drawbacks to additional insured status, these typically are outweighed by the benefits.

In this three-part Founder’s Tip series, we review some of the nuances of additional insured protection, not only by defining the term and how to obtain such coverage (Part I), but also by outlining its benefits and disadvantages (Part II), and by listing various risk management tips specific to additional insured status (Part III).  At the end, you should have enough information to determine whether additional insured coverage is as “groovy” as it sounds.

“Additional Insured” Defined

To understand what an “additional insured” is, it’s easier to begin with what it is not.  An additional insured isn’t a “named insured” or an “additional named insured.”  These are persons or entities to which the insurance policy is issued.  Named and additional named insureds may have broader protection and rights under a policy, but they may also have greater obligations, such as paying premiums.

In contrast, an “additional insured” is a person or organization that is added to a named insured’s policy by endorsement.  A named insured typically adds an additional insured to its policy to comply with a contractual agreement between itself and the additional insured that requires the named insured to do so.  Additional insureds have fewer responsibilities and obligations under an insurance contract than named insureds, but don’t always enjoy the same scope of coverage or rights under the policy.

Obtaining Additional Insured Status

Additional insured status is granted through a contractual agreement between the insurer and named insured in the form of a policy endorsement.  The endorsement may either specifically name the additional party or provide a general description in “blanket” form.  To guarantee that you have been added as an additional insured and have obtained the coverage that you negotiated for, you should ask the named insured for a copy of the endorsement and policy, in addition to the certificate of insurance.  The certificate of insurance isn’t always accurate or complete and doesn’t constitute a valid copy of the contract or prove the terms of the policy.

Conclusion

Understanding the concept of being an additional insured and how to obtain such coverage is the first step in determining whether this status is right for your company.  In the next installment of “I Got You Covered,” we discuss the benefits and downsides of additional insured status so you can continue to analyze whether it is truly a good fit or not.