Additional Insured, What’s the Big Deal?
Providing a customer or potential customer with a certificate of insurance is not the same thing as providing a certificate which by endorsement grants a customer additional insured status on your policy. So what’s the difference? A certificate of insurance is merely a snapshot of policies and coverage limits on the date the certificate was provided. A certificate with an additional insured endorsement grants the additional insured specific rights to your policy.
The purpose of the additional insured endorsement is to reinforce the indemnity obligation of one business, organization, or person to another. Said plainly, it is a method of transferring risk from one business to another. If an additional insured is sued due to their sub-contractors negligence the sub-contractor may be responsible for funding the defense costs and settlement of property and/or bodily injury damages. Being an additional insured is only a method of ensuring a sub-contractor has reasonable ability to pay if liable for defense costs and damages.
There is a common trend forming in the service and construction industry. General Contractors, Lessors, and Property Managers are frequently asking for every indemnification under the sun. I’ve reviewed several contracts this year that attempted to reach far beyond what a pool tech should accept responsibility for. Keep in mind, granting additional insured status does not enhance or alter the actual coverage provided by your policy. Far reaching agreements may create coverage gaps leaving your business exposed. For example, one agreement I reviewed required that a pool tech accept responsibility for ongoing ADA compliance in and around the pool area. What does ADA compliance have to do with maintaining water chemistry? Nothing!
Dilution of limits is another concern that comes to mind. Most standard commercial general liability policies are occurrence based, the policy triggered in the event of a covered claim is the policy that was in effect at the time of the occurrence, not necessarily when the occurrence was reported to the insurance company. This is important because damages may not be discovered or reported right away. CPA doesn’t have a shared limit policy, our members enjoy their own limits of insurance. For those business owners in our industry who do have a shared limit policy, think about the potential risk. The coverage afforded by the policy limits could be shared amongst the association, chapter, and additional insureds. How do those business owners even know how much coverage is left under each policy year?
The bottom line is contracts are negotiations, read them carefully and pay attention to what responsibilities you assume. If you use sub-contractors, require a certificate from them that specifically lists your business as an additional insured. That way you’ll know if their insurance cancels. Also, all additional insured endorsements are not created equal. Send us a copy and we’ll review it with you.