People ask about ‘additional insured’ coverage

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By Mike Vincent
Wesco Insurance

A common clause in a subcontractor agreement is the requirement of an “additional insured” endorsement.

A construction contract, especially when a subcontractor is performing for the general contractor, is a good example.

In insurance policies, the term “insured” means a person or organization for whom the insurance company provides coverage and legal defense. When an organization is an additional insured, it extends some coverage for the additional insured in addition to their own insurance.

For example, assume that General Contractor hires Subcontractor to install the electrical system in a new building. In the contract, GC requires Sub to have GC named as an additional insured on Sub’s liability policy. This will protect GC if a lawsuit names him and Sub for an accident involving Sub’s work for GC.

Another example is a building owner leases his building to another business or several businesses to operate out of. It is strongly suggested that the building owner obtain a certificate of insurance from the businesses listing them as additional insured. Without this, let’s say the business is operating a restaurant and one of their customers slips on a wet spot on the floor causing injury. If there is a lawsuit you can bet that the restaurant AND the building owner will both be named. If the building owner is listed as AI on their tenant’s restaurant insurance it will generally step in for the building owner’s defense.

Why would an organization want to be an additional insured?

Risk transfer. It’s commonplace these days to be listed as AI on another’s policy.
So that its own insurance will not have to pay for an accident that they may not have caused. Many times the GC or building owner’s insurance company will require it.

To limit its insurance premiums. Having coverage under someone else’s policy makes it less likely that its own insurer will have to pay claims.

If the Subcontractor doesn’t have insurance the General Contractor may have to pay for the subs insurance at their audit as if the sub was an employee (ouch!).

Additional insured coverage is a standard part of construction projects as well as other subcontract agreements when one party is performing for the other (any business can have this exposure). It can be part of winning a job as a subcontractor, and the cost of the insurance requirements should be taken into consideration when bidding on a project.

You may have to purchase additional insurance to meet these requirements, and that is where you insurance agent comes in and can help you meet these requirements. If you have questions about this, ask your insurance agent or call us at Wesco we would be happy to answer your questions.

Mike Vincent is co-owner of Wesco Insurance Agency.