Additional insured: What does this really mean?
When you enter into a business relationship with another company, that company may request to be added as an additional insured on your business’s insurance policy. It’s a common request. You probably hear it so much that it has lost all meaning. However, you most certainly should not ignore the importance of additional insured requests.
At its foundation, requesting additional insured status is a way of shifting risk. If you were to lease property for your business, the leasing contract almost assuredly would state the insurance requirements on both parties. In addition, it would likely spell out what areas of the leased property both parties are responsible for and, at the very least, require the tenant to add the landlord to all applicable policies as an additional insured.
What does this mean in practice? Let’s say someone were to slip and fall on the premises in an area controlled by the tenant. Any good attorney is quickly going to name not only the tenant in the lawsuit, but the landlord as well. By virtue of being added to the tenant’s commercial liability policy as an additional insured, as required in most lease agreements, the landlord can send lawsuits to the tenant’s insurance carrier for defense and coverage. In other words, the landlord’s risk has been mostly shifted to the tenant—or more accurately to the tenant’s insurance carrier. This makes sense as by the virtue of the lease agreement the tenant is taking control of the premises. In the absence of additional insured policy language, a landlord could be held liable for a claim that it did not contribute to nor avoid.
It is important to remember that just because someone requests additional insured status does not mean that he or she automatically receives it. Once you receive an additional insured request, remember to call us so we can discuss the coverage repercussions and make sure the proper coverage is in place for the proper parties.