Additional insured: Overview, definition, and example
What is an additional insured?
An additional insured is a person or entity that is added to an insurance policy, granting them coverage under the policyholder’s insurance. This typically protects the additional insured from claims or liabilities arising from the policyholder's operations or activities. Additional insureds are often included through an endorsement or rider to the original policy.
For example, a landlord might require a tenant to list the landlord as an additional insured on the tenant’s liability insurance policy to protect against potential claims related to the tenant’s use of the property.
Why is an additional insured important?
Adding an additional insured is important because it extends liability protection to a third party, reducing their exposure to risks and potential lawsuits. For businesses, it helps foster trust in partnerships, contracts, and business relationships, as it ensures that all parties involved have some level of protection.
From the additional insured’s perspective, this designation minimizes financial risks by providing them with coverage under the policyholder's insurance. For the policyholder, including an additional insured is often a requirement in contracts to fulfill agreements with clients, landlords, or business partners.
Understanding additional insured through an example
Imagine a construction company hires a subcontractor to complete electrical work on a building project. The general contractor requires the subcontractor to list the contractor as an additional insured on the subcontractor’s liability policy. If a third party is injured due to the electrical work, the general contractor would be covered under the subcontractor’s policy, reducing the contractor’s financial exposure.
In another example, a business leases office space from a property owner. The lease agreement requires the tenant to add the landlord as an additional insured on their liability policy. If someone is injured on the premises due to the tenant’s activities, the landlord is protected under the tenant’s insurance policy.
An example of an additional insured clause
Here’s how an additional insured clause might appear in a contract:
“The Policyholder agrees to include [Insert Name] as an additional insured on the applicable insurance policy for the duration of this Agreement. The additional insured shall be provided coverage for any claims arising out of the Policyholder’s operations or activities, subject to the terms and conditions of the policy.”
Conclusion
An additional insured designation is a valuable tool for managing risk and fostering trust in business relationships. It ensures that third parties, such as landlords, contractors, or clients, are protected from liabilities related to the policyholder’s actions. Including a clear additional insured clause in agreements and properly structuring insurance policies helps avoid disputes and ensures all parties are adequately protected.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.