Additional Insured Pitfalls

By Ken Kukral

­­E&O Warning!

On a daily basis I see requests coming in asking for additional insured status for accounts we write or ones that we are currently quoting.  As a general rule this would be standard operating procedure but in reality it IS NOT!   Why you ask?  Most of the requests we receive for additional insured status do NOT include the specific additional insured form that should be added.   The requests usually advise who needs to be added as an additional insured but do not list the interest of the additional insured.

This gets into a philosophical debate on whose responsibility it is.  The insured (who is bidding a job, or needs to produce a certificate with an AI in order to get paid for a job), the agent, the wholesale broker or the carrier?  If an insured loses a bid because the wrong AI form was used, whose fault it is?  I think a lot of the responsibility falls back onto the agent since they are the ones dealing directly with the client, the ones gathering the information and the one who is “advising” the client.

So what should you do about it?

1.     Discuss additional insured endorsements with the client when originally writing a client.  Make sure they understand that they are allowing another party to potentially tap their insurance coverage and they may not have sufficient limits when they have a loss.  This would also be a good time to discuss writing higher limits for the client.

2.     Have a certificate/additional insured request form that you use so the client is aware of what information you will need in order to add an additional insured.  Many times these requests come at the last minute (a couple hours before having to submit a bid, or when there is a hold up in getting paid due to lack of a certificate) and the “pressure is on”.  I am sure you will agree that these “moments of truth” can make the difference between a satisfied client or one that will have a good reason to let other agents quote the business at renewal.  Besides, don’t you love dropping everything you are doing just to take care of a certificate/AI request?

3.     Increase your knowledge of the available additional insured endorsements.  By understanding the use of AI endorsements you can better fit the AI endorsement to the situation.  Does the insured need to provide additional insured status for completed operations?  Many times the requests that come in for contractors do not specify this requirement so in reality the additional insured endorsement on the policy does not provide any coverage once the insured finishes the work and leaves the jobsite.

4.     What additional insured endorsements does the company you are quoting with offer?  You should find this out upfront, including whether there will be a charge for the AI endorsement or not.  Also find out the cost and the form to add blanket additional insured.  You may find out that the carrier does not offer the AI form you will most likely need later on.  It would be better to know that up front rather than after writing the account.  Some contracts still call for the CG2010  (11/85) form.  Since many carriers use the most “current” ISO forms (per their filings with the state insurance department) this form may no longer be available.  Keep in mind that not all blanket additional insured’s are created equal.  Some give coverage to new additional insured’s as long as the carrier is made aware that they have been added.  If you fail to notify them they may not have coverage at the time of a loss.

5.     Confirm what additional insured’s are needed on each renewal.  There may be provisions in the contract your insured signed that require AI status be continued for a specific period of time after a job has been completed.  Keep in mind that the insured exposes their limits to claims of other parties so keeping an on AI longer than required can expose their limits for an extended period of time.

6.     Check out the insured versus insured exclusion on the insured’s policy.  I have seen where a carrier’s insured versus insured exclusion excluded claims from ANY insured versus ANY insured.  This effectively excludes losses if they are sued by the additional insured.

7.     Read the umbrella policy.  Additional insured endorsements may not follow form in the umbrella.  The “other insurance” provision of the umbrella could state that the additional insured’s own coverage must be tapped before the umbrella would pay.

8.     For company specific endorsements, READ THEM!   They may be a derivative of the ISO form but one or two word difference could make a huge difference.

9.     As I have mentioned in the past, don’t try to amend the policy via the certificate of insurance.  In many states this is illegal and you could get dinged by the department of insurance.  If needed, show them the department of insurance bulletins on this subject and make sure you take the “straight and narrow” or risk getting in trouble.

10.     Get a full copy of the contract.  Many times clients only send you the “insurance” provisions but there are a number of other areas that could affect coverage.

Knowing the pitfalls of additional insured endorsements can help to keep you out of trouble.  Be proactive about dealing with these type of situations and your customers will be better taken care of.  Standardize the procedures in your office on dealing with additional insured’s so that they are handled systematically and will keep your E&O exposure to a minimum.  There is nothing worse than a $100 additional insured endorsement leading to a $1,000,000 E&O claim.

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