Additional Insured - Give Away or Not To Give Away
Liability insurance is purchased as protection for the policyholder from third party claims made against the company. What happens when the policyholder agrees to add another unrelated party as additional insured to its policy... and why would anyone agree? Simple answer - resist it where possible. Keep in mind that including certain parties as additional insureds is considered usual (and required) in the course of many industry relationships.
Why resist? Management of risk. Preservation of limits for your own account ; do not dilute your limits for another party. Preservation of your loss history - insurance companies can provide preferential deals for businesses that are able to display understanding of its risks and management thereof. This can be an effective component to a risk management strategy aimed at reducing overall cost of risk.
The additional insured relationship is created through contract with compliance via insurance. The request for additional insured must be appropriate and the terms under which the status is granted varies. The most recent data observed by our firm regarding the number of additional insured endorsements available in the marketplace is over four hundred. Approximately thirty are ISO, a standardized version.
Where granting additional insured status is required, try negotiating the terms. Be sure the request is appropriate for the relationship and be sure your policy is compliant with the agreed upon request. Agreements are designed to protect the drafter, so keep an eye on ways to reduce the contractual risk transfer to you.
It is important to keep in mind that while insurance companies readily provide additional insured wording it may not be applicable or appropriate. A general or overly broad request should be reviewed and discussed. Information on the subject is abound and plentiful and therefore the drafter should have no trouble creating a clear request for specific form, edition, or language. Also beware of overly broad indemnity provisions - - a denied additional insured claim (rightful or otherwise) can result in enforcement of indemnity provisions and breach of contract claims. Insurance companies are adept at denying additional insured claims.
Don't overlook getting it right.