One of the most common misconceptions we run into is the assumption that there is no difference between a named insured and additional insured on a liability policy. The two may sound very similar, but there is a distinct difference and it’s essential for business owners to understand.
Not to worry, we’ll clear it up for you.
A named insured is the policyholder. They are entitled to all of the benefits that the policy has to offer. In return for said benefits, the first named insured listed on the policy is responsible for premium payment.
Multiple named insureds may be added to the policy at the first named insured’s request. These additional named insureds will be entitled to the full policy coverage along with the first named insured. Often an additional named insured is a subsidiary of the first named insured who has the same or very similar operations to the first named insured.
An additional insured is an entity who is not the policyholder, but is entitled to some of the benefits of the policy because of a direct business relationship to the named insured.
The coverage afforded to an additional insured is limited to liability caused by the named insured. In other words, if the additional insured is named in a lawsuit that was directly caused by the named insured, the additional insured will be covered by the policy.
However, coverage for the additional insured stops there. So if a loss occurs because of the negligence of the additional insured, they will not be covered under the policy. The additional insured should have their own liability policy (where they will be a named insured) for such losses.
To paint a clear picture, let’s say you are the landlord of a building with retail tenants. A patron is injured in one of the stores because they trip over some equipment owned by the tenant. When the injured patron receives a hefty hospital bill, they name you, as the building owner, in a suit. Does it seem fair that you should be liable for an injury that took place in a space that is leased and under the control of your tenant? Probably not! That’s why it’s always a good idea for landlords to require being added as an additional insured on each of their commercial tenant’s liability policies. With additional insured status on the tenant’s policy, you should be covered by their policy for such claims.
As a policyholder, it is important to have a firm grasp on the named insured vs. additional insured delineation. It is not in your best interest to be adding entities as a named insured when additional insured status will suffice. When you make this mistake, you run the risk of exhausting your policy limits on losses unrelated to your business. Additionally, always require being an additional insured on the policies of your business partners, tenants, or vendors when you might be exposed to losses that are not due to your negligence.
When in doubt, contact us!
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