Additional Insured: a person or organization covered by another person's or organization's insurance policy.
Additional Insured Details
Additional Insured refers to any organization that enjoys a specific insurance policy's benefits in addition to the original purchaser of the policy. When an organization purchases insurance, sometimes they add additional beneficiaries. In the broad view of additional insureds, we observe that companies buy some insurance overs and insure their employees, and parents usually include their children in their insurance policies. These are only a few instances that consider the benefiting party as additionally insured.
In business, providing additional coverage is often required either by contracts or the law. For companies and organizations, additional insurance is often a result of contract terms drawn up. When one company does some work for another, the hiring business usually demands additional insurance coverage under the other company's liability policy. The obligation is a written stipulation of the contract signed by both parties.
Another reason for additional insurance is government regulations (i.e., laws). Businesses are often required to cover their employees in certain regions of the world. It allows any employee to be additionally insured under the company's liability policies.
Example of Additional Insured
Usually, larger businesses require smaller businesses to name them as additionally insured; the larger organization needs leverage and security. Since they have more bargaining power, the larger company can get the smaller company to do this. However, this is not always the case.
One of the best examples of additional insured in action is manufacturers. Manufacturers sometimes wish to cover sellers of their products as additional insureds under their liability policies. It is a move to motivate sellers to promote the manufacturer's products virally without fear of lawsuits.
Another good example of additional insured is commercial landlords. Landlords of commercial buildings usually require their tenants to name them as an additional insured on the tenant's insurance policies. It comes in handy when an accident or loss happens since the landlord will also benefit from the insurance coverage.
Significance of Additional Insured
To be included as an additional insured under a liability policy, there must be a business relationship between the policyholder and the other party. Another requirement for additional insured coverage is if there is a risk of lawsuits due to negligence on the policyholder's part. Common business relationships that need additional insured coverage include the following:
- A Landlord and tenant(s)
- General contractor and subcontractor
- A property owner and general contractor
- Sellers and manufacturers
The scope of coverage offered to additional insureds is usually limited. It does not provide the same coverage as it does to the one who originally purchased it. The insurance policy usually spells out the limitations. For example, regarding liability coverage, an additional insured is covered only for claims that arise due to the work the named insured is performing on the additional insured's behalf or where the parties are explicitly working together.
Both the company buying the insurance and the additional insureds get some benefits from the arrangement.
- Protection from lawsuits: The additional insureds get protection from lawsuits if the liability policy allows for it. It makes it easier for them to conduct business and keep their profits.
- Legal aid: If a lawsuit is brought forth, both parties get to have defense coverage. The insurance policy usually covers lawyers and court fees, and settlements.