Understanding Named Insureds and Additional Insureds

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Today we continue our series helping personal lines insurance professionals seeking to make the move to commercial lines. In the past we’ve written about Business Income, Worker’s Compensation/Employer’s Liability, Coinsurance and the Basics of Commercial Lines Insurance.

What is the difference between a Named Insured and an Additional Insured? If you’ve ever been asked to explain this to a client, you know that the differences are important, but you may have struggled to list them off quickly. Here’s a guide:

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Named Insured:

The Named Insured is typically, but not always, the owner and payer of the policy. This is the entity that you will see listed on the Declaration Page indicating who the policy is covering. As the Named Insured, this entity is provided the full protection as outlined in the policy. Assuming they also own the policy, they are the party that is able to request modification or cancellation of a policy. It is important to know that certain types of policies may be purchased and owned by someone who is not the named insured. This is the case for some life insurance policies, particularly in business situations, like group life policies or key man life insurance. Another common instance is in the event that the owner of a construction project requires the general contractor to purchase the policy for the project; this type of policy is called an Owners and Contractors Protective Policy (OCP).

Policies may have multiple Named Insureds if there is a situation that calls for it, such as a joint venture between two entities. In this event, the First Named Insured has certain rights and responsibilities that the others do not. The rights include receiving notices of cancellation, invoices, and other communications regarding the policy. The responsibilities include payment of premium, compliance with audit or inspection requests (if required by the policy’s conditions), and reporting of claims in a timely fashion.

 

Additional Insured:

On the other hand, additional Insureds are added to the policy due to a relationship they have with the named insured. They are added to the policy by endorsement, and the protection that they are afforded will vary depending on which policy form is used to add them. Most companies charge a nominal fee to add an additional insured to the policy since the endorsement does expand coverage to include another party.  And, most companies have many different forms for adding additional insureds. There are even some options to add “Blanket Additional Insureds,” which cover any Additional Insured if required in a contract with the Named Insured. In general, their rights and responsibilities will be severely limited compared to a Named Insured. They will have the option to file a claim if necessary, but they will not be able to modify or cancel coverage. They would also not be entitled to a refund of premium.

There are many Examples of when you mayo receive a request to add an additional insured:

  1. A general contractor may ask to be named as an additional insured on his or her subcontractor’s liability policy. In this case, the general contractor is looking to ensure that should the subcontractor cause a claim due to their work on a project, the general contractor’s own policy can respond after the subcontractor’s policy.
  2. The lessor of a building requests to be added as an additional insured on his or her tenant’s liability policy. The lessor wants coverage in the event that the tenant experiences a premises liability claim.  Similar to the situation above, the tenant’s policy would provide primary coverage since the landlord and the tenant would likely both be called upon in the event of a suit.
  3. A bank may ask to be listed on a property for which it holds the mortgage.  This is usually referred to as being “listed as a mortgagee.” This does apply to the property coverage and typically gives the bank privileges in the event that the insured experiences a property claim.  The mortgage company would be listed on the settlement check, and in some cases, they may even receive payment if the insured discontinued payment on the policy.  On the property side, these endorsements are called Mortgagee Clauses or Loss Payable Clauses.

When it comes to adding additional insureds to policies, it is important to understand the relationship between the two entities and be certain that it makes sense before doing so. Adding the additional insured endorsements does open the policy up to potential to be brought in on more lawsuits.

Named Insured: Owns the policy, owes the premium, has all the rights.

Additional Insured: Added to the policy by endorsement due to a relationship with the named insured, and what they get will vary depending on policy form.

This is a summary of a summary of a summary. Don't take it at face value.

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