Additional Insured Coverage
Insurance industry jargon can be confusing and complicated. It is a common reaction to feel overwhelmed if you’re handed contract documents with numerous insurance requirements that require your compliance.
One of the most common contract insurance requirements looks something like this
The User shall obtain the following insurance coverage in a form satisfactory to the Owner:
- Comprehensive General Liability insurance in the minimum amount of $2,000,000
- Owner shall be named as an additional insured with not less than 30 days prior written notice to the Owner
- A certificate of insurance shall be provided to the Owner
Companies engage in business agreements with other companies. If a third party (yet another individual or company) suffers either an injury or damage to their property, they may sue all involved. This may sound like something from a Monday night tv movie but the reality is, that if someone is injured or even dies, everyone may be held accountable.
Possible scenarios where both companies are sued:
- Building owner hires a company to spray paint the exterior of the building. Painter sprays on a windy day and 10 cars are splattered with paint.
- Grocery store operates in a rented building. Ceiling tile falls on a customer causing injury.
- Appliance store sells stoves for a manufacturer. Defective stove causes a fire at the customer’s home.
The actions of one company triggered an accident that resulted in a claim against both companies.
Companies can protect themselves against such claims by demanding coverage as additional insured the other company’s general liability policy.
Two important points to remember:
- Companies still require their own insurance for their own general operations. Additional insured clauses only apply to the work being performed on behalf of the other company;
- Adding someone to your insurance policy does not mean they have all the same coverage as you do. Again, additional insured clauses only add coverage for the work performed for you by the other company.
Additional insured requirements are common practice in the commercial insurance industry. However, it is important to fully understand the specific conditions of each contract. Trust a knowledgeable insurance professional to work for you. Come see us at Farrell Agencies. We’re here to help.