Additional Insured Obligations

Additional Insured Obligations

Additional insured (AI) coverage is a common trigger of coverage disputes. The fact of the matter is that not all AI forms are created equally. To create additional insured coverage, typically, a policy is endorsed to extend coverage to another party. In most cases, there is a requirement that there is a signed, written contract requiring that party to be added to the policy as an additional insured.

The signed contract is the first step in the process. There are varying endorsements that provide AI coverage for ongoing operations and others extending to completed operations. Sometimes, the coverage is provided for liability for bodily injury or property damage caused in whole or in part by the additional insured’s acts or omissions. Other forms state the coverage is provided for liability for bodily injury, property damage, arising out of the additional insured’s work.  

While the differences in verbiage are subtle, their meaning and intent differ. Forms with the verbiage “arising out of” are typically interpreted more broadly. There, a casual nexus is needed to trigger defense and indemnification as an AI.  

The wording “caused in whole or in part” requires a covered loss to be directly caused by the acts or omissions by the insured.  Determining whether such a loss has occurred can involve a long legal process to determine whether the facts support coverage.

The nuances in additional insured language and the insurance carriers’ obligations are sometimes at odds with one another. At times, the carrier will provide a defense to the upstream party as an additional insured under a reservation of rights. If during discovery it is learned that AI is solely negligent for the loss, the carrier will not provide indemnification.  However, this is only if the AI is the sole negligent party, and the named insured did not cause the loss.   

Accepting AI under a reservation of rights also yields higher carrier defense costs or insured costs with high retentions. The carrier must pay for the named insured’s defense costs as well as the counsel handling the AI defense.

Claims advocacy is instrumental in directing the claim and expediting the acceptance of tenders by an insurance carrier. Strong advocates can also assist in the tender process for their insured’s initiating appropriate risk transfer / AI coverage requests from downstream policies.  Understanding risk transfer, policy language, and guiding insurance principles can positively impact this complex process. This can yield positive results, be it controlled loss expenses or reduced loss exposure. 

Working with an educated broker, like TSIB, who is knowledgeable in the varying AI forms available in the marketplace, is extremely important. Reach out to TSIB today and speak with one of our Risk Advisors to make sure your insurance policy procured mirrors what is contractually required.  

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