Additional Insured Endorsement: How Can it Benefit Your Business?
Dan Levenson July 17, 2019
Sometimes, starting a business relationship with another company, such as a general contractor, may be difficult before all parties can find a way to address additional liabilities that the partnership may potentially create. You may already have a commercial general or professional liability policy, but the insurance cover may fall short when the other business makes mistakes for which you may be held liable. An additional insured endorsement (ISO) can solve that problem by protecting you both against potential liabilities.
What is an Additional Insured Endorsement?
If you take out an additional insured endorsement, you’re extending an already existing liability insurance coverage, for example, general liability policy, to a business partner to cover any additional liability exposure you potentially create for them. It protects your company and your business engagements with parties such as general contractors. Generally, a larger company may require a smaller potential partner to name them as an additional insured as a prerequisite for doing business with them.
There are different types of additional insured endorsements, each of which may be worded uniquely to address specific liabilities or compensable risks. Be sure to get your policy’s language right to protect your business interests sufficiently. For example, the ISO type CG 20 10 4/13 does not cover the other party, such as general contractor, against their sole negligence. The additional insured can only obtain protection under this endorsement if the policyholder (e.g., a subcontractor) bears full or partial liability for the loss in question.
Additional insured endorsements may save the day in business relationships such as:
The owner of a commercial building in which your business operates may ask you to name them as an additional insured on your renters’ insurance policy. Your landlord will benefit from the coverage in the event of loss of property or personal injury on your business premises. The required endorsement, in this case, is the managers or lessors of premises or CG 20 11.
Project Owner and Contractor
A third-party may deem the project owner liable for a contractor’s acts of commission or omission on a construction project. For example, an investor hires a contractor to set up scaffolding over a sidewalk, and people are allowed to walk under the installation. Two pedestrians sustain injuries after the scaffolding collapses. They then file claims against both the project owner (investor) and the contractor. While the investor neither built the scaffolding nor told the contractor how to assemble it, they’re now facing vicarious liability for the contractor’s errors. If an additional insured endorsement covers the project owner (because the contractor extended their preexisting liability insurance accordingly), they have protection against financial loss in case the court rules in favor of the injured pedestrians.
An insured company (lessee) that uses leased machinery, such as heavy construction equipment, may also require an additional insured endorsement to address the exposure the business arrangement creates for the equipment owner (lessor). In this scenario, the lessor may require indemnity against liability that the lessee creates while using or maintaining the leased machines. The right form of additional insured endorsement for this contractual relationship is lessor of leased equipment (CG 20 28).
Commercial Auto Insurance
A company may include an additional insured endorsement in its commercial auto insurance policy. The ISO is suitable for businesses whose vehicles have multiple drivers. Without necessarily specifying a name, the cover may protect any individual (besides designated drivers) who may drive company cars.
Choosing the Right ISO for Your Business Relationships
ISOs are business-critical inclusions in contracts for general contractors, project owners, subcontractors, commercial landlords, tenants, and other parties. However, including a specialized additional insured endorsement in your general liability policy can only yield maximum benefits if you fully understand the perks, conditions, and limitations specific to it.
At Insure Your Company, we can advise you on how to create a comprehensive insurance cover for your business by selecting the right additional insured endorsement. Contact us today to discuss specifics!