Somebody asked to be added to my General Liability insurance policy as Additional Insured — what does this mean?
Adding somebody as Additional Insured to your insurance policy means you are extending your liability coverage to them, to protect them from potential lawsuits arising from your operations. So if you are both sued in the same lawsuit, your policy will respond to cover the person or organization you have added as Additional Insured (assuming the reason for the lawsuit is covered under the policy, like a slip and fall).
Take a room booking, for example. Organization A is booking a room for an event in a City-owned community center. The City does not want to take on liability if something happens at the event, so before they agree to book the room, the City requests Organization A to add the City as Additional Insured, shown on Organization A's insurance policy. This way, if an injury occurs and both the City and Organization A are sued, the City can rely on Organization A's insurance to pay for any damages. When something goes wrong, it is common for the injured party to sue everybody involved, and this is a way for the City to manage their risk.
It is important to note that this only applies if both parties are named in the same lawsuit, and only with respect to the reason for adding them as Additional Insured. For example, if on the same day of the event somebody slips and falls in the lobby of the City’s community center, unrelated to the Organization A event, the City's own insurance policy would be required to respond. Organization A was not named in the lobby fall lawsuit so their policy wouldn’t be called on.
Sometimes organizations think they are covered because they have been added as Additional Insured as if being tucked under the wing of another insured organization. This is not the case. Being named as Additional Insured will only cover you for a lawsuit where both parties are named, and only specifically with respect to the reason for being named (i.e. the room booking above). Think about it: insurance companies wouldn't want only one organization to be insured and begin collecting other organizations (including their risks and operations) on that policy. They would want to charge premium in accordance with the increased risk.
Another way to look at this concept is by reviewing the definition of a Named Insured, and what that really means.
Let's dig into that.
What is the difference between Additional Insured and Named Insured?
The Named Insured is the actual policy holder, typically the person or organization who purchased the policy.
So we have to dig a bit deeper and consider who is actually covered by looking at the definition of a Named Insured. Most commonly, the definition will include the organization itself, its employees, directors and officers. In some cases it will also extend to cover the organization's volunteers (it’s important to check — Axis Insurance policies automatically include volunteer coverage). This means that if any of these people are named individually in a lawsuit for something covered in the General Liability policy (such as a slip and fall) the policy will cover any defense costs and court award or settlement.
An "Additional Insured" is a third party who has been added to the Named Insured's policy. The Named Insured's policy will extend liability coverage to the Additional Insured, but only if they are named in the same lawsuit together.
Let's look at a couple of practical examples.
- Jack is an employee of Organization A, and Sally is a volunteer. Jack is the event organizer where Sally is helping out. One of the event attendees slips and falls, and is physically injured. The injured person sues Organization A, Jack and Sally for their involvement in the event leading to him being hurt. Each of the three of them meet the definition of the Named Insured, and the insurance policy will cover them for defense costs and any court award or settlement. Even if they are not at fault and had nothing to do with the injury other than their participation in the event, the legal bills will be covered by the insurance policy.
- Two groups are hosting an event together: Organization A, which has a $1 million general liability policy, and Organization B, which didn’t buy insurance. Organization B has been added as Additional Insured to Organization A's policy, thinking that would cover them for the event. Joe, an employee at Organization B, is mopping up a spill on the floor. Somebody slips on the wet floor, and sues Joe. Because he is an employee of Organization B, which doesn’t have their own policy, and he was named in the lawsuit alone (without Organization A), Joe will have to pay out of pocket to defend himself and settle any court-awarded damages. This is why it is always important to have your own general liability policy with your organization listed as the Named Insured.
What are common Additional Insured requests?
- Event venue bookings
- Landlord & Tenant
- Event Sponsors
So you’re hosting an event, and the performers that you’ve hired for entertainment are asking to be added as “Additional Insured” on your insurance policy.
Why? Because they want to make sure that if something bad happens, someone – anyone – could sue. And they know that everyone involved in the event could get sued – your organization or company, the volunteers who helped out, the directors of the organization, and themselves, the performers.
Here’s another situation: An organization is leasing a space in a building owned by the municipality. The municipality, as the landlord, may ask to be added to the organization’s policy as Additionally Insured.
- You might be thinking: If the municipality owns the building, won’t they have their own insurance? That may be the case, but they don't want to take on the extra liability from the activities of the organization using their space.
For example: Mario’s Art Supply operates an art supply store in a building it leases from XYZ Properties. If a customer is injured while shopping, they might sue both Mario’s Art Supply and XYZ Properties for negligence. For XYZ to properly protect itself from claims or suits that might arise from Mario’s Art Supply operating in the space owned by them, they ask Mario's Art Supply to add XYZ Properties as Additional Insured to their General Liability policy.
So how do I add somebody as Additional Insured?
Contact your insurance broker and provide the name, address, and reason for adding the other party as Additional Insured. They will provide a certificate of insurance showing proof that the other organization has been added to the policy.
Does it cost anything?
It depends. For most common requests, like adding a landlord or the owner of a venue, it is free. For other requests, where the insurance company may be assuming more risk as a result, there can be a small charge. This charge reflects the increased chance that there will be an incident, and a claim against the policy.
Are there Additional Insureds for property insurance? What is a Loss Payee?
When it comes to a property insurance policy, occasionally an organization will have the property of other people in their possession. They may have leased, borrowed or rented equipment. The actual owner of the equipment would want to be paid if there was a fire, or another reason for it to be damaged, because it is their stuff.
Therefore, the owner will be listed on the borrower's insurance policy as a Loss Payee (the person to be paid in the event of a loss). In this case the borrower is paying for the coverage, to the benefit of the owner. Rental agreements often have this clause and request that the owner (the rental company) be listed as Loss Payee for the equipment being rented, so they get the insurance cheque if the property is damaged.