How to Handle Requests for Additional Insureds
As a business owner, you may have been asked to add an Additional Insured to your insurance policy. But what does that mean and how does it work?
When you run a business, you form relationships with your customers, vendors, landlords, bankers and subcontractors. In some of these relationships, you enter into contractual agreements with these parties. There are instances when the other parties want to limit their liability. To do that, they ask you to share your liability coverage by adding them as an insured on your policy. This will give the other party status as an insured on your policy, which allows them a certain amount of rights and coverage in the event of a claim.
This is most often seen when “the big guy” asks “the little guy” to take on this additional risk.
In the construction industry, a general contractor (GC) who builds new residential homes needs to hire many types of subcontractors to get the job done. These include carpenters, electricians, plumbers and any other specialty trade needed for a particular job. When these subcontractors are hired, the GC asks to be named as an Additional Insured on the sub’s policy. If someone goes onto a jobsite and is injured due to negligence, the injured person would sue the GC and the subcontractor because they are both at the location. The GC would want the claim handled on the sub’s policy, and as an “Additional Insured” this can happen because the GC has the rights of an insured on that subcontractor’s policy.
Vendors and landlords are a few other groups that also routinely request “Additional Insured” status to protect their interests.
Many small-business owners feel if they don’t agree to such terms, they won’t get the job. However, this can and should be negotiated at the time the contract is being created. Many large corporations use standard contracts whether they are dealing with another large corporation or a one-man operation. A good rule is never sign a contractual agreement without knowing the amount of liability you are asked to take on.
This is where your insurance agent can be worth his or her weight in gold. Your agent can review the terms of the insurance section of the contract and advise you on your options. You can then make an informed decision about the job.
The good news is that insurance carriers realize that adding “Additional Insureds” to your policy is part of the cost of doing business. The coverage is approximately $50 to $100 per “Additional Insured.” Endorsements are also available that allow you to add as many “Additional Insureds” for certain relationships for a higher one-time charge. Nonstandard requests can be reviewed by your insurance company, and the company may charge a bit more, depending on the contract requirements. If the insurance company agrees to take on more liability, the company will want to charge appropriately for it. Typically, business owners then pass that additional charge on to the person they are contracting with as part of the cost.
The prospect of adding third parties to your liability insurance can be scary. Having a trusted agent to rely on can give you the peace of mind to make the business decisions that are right for you.