The title of this article is not a joke or a typo, it is a list of the three most common names the insurance industry gives to people or businesses covered under standard insurance policies. Though the three phrases are strikingly similar, they have different meanings that can significantly affect the types and amount of coverage available.
Most insurance policies define these terms but you have to slog through dozens of pages to find them and then try to understand insurance-ese, the inbred cousin of equally formidable “legalese.” Insurance policies in California have been starting to evolve into “plain English” as directed by the Legislature, but the evolution has been gradual (cynics would say deliberate), as illustrated by one of the authors’ favorite insurance industry quotes, “We are now writing our policies to eschew obfuscation.” While the differences between these terms may be clear to the insurance company underwriters and their attorneys, the loose flip-flopping of these terms by marketers, agents, brokers, and often the commercial party requesting one to “add me as an [fill in the blank] insured proves that clarity has not yet been attained.
A layperson should take solace if confused because even the insurance industry has trouble explaining. A couple of the online insurance industry glossaries say, “the term additional named insured has not acquired a uniformly agreed-upon meaning within the insurance industry (isn’t that helpful?) and use of the term in different senses often produces confusion and requests for additional insured status between contracting parties (now that’s eschewing obfuscation). But, not wanting to leave potential customers lacking key information, the industry glossaries explain the differences as follows “an additional named insured can be contrasted with an additional insured, which is an individual or entity added to a policy as an insured but not as a named insured.” (Oh, that explains it.)
We will try to clarify.
The Named Insured
This one is easy, this is the person(s) or business(es) actually named in the policy, usually on the first page and the Declarations page, as “named insured.” There can be more than one named insured. For example, on an automobile policy, typically a husband and wife and perhaps children are named insureds. In the case of a business, usually the business is the only named insured, but the owners or subsidiaries are often also “named insureds.” “Named insureds” are the persons or entities that have the broadest protection in terms of coverage and indemnity under the policy. They choose coverage types and amounts, get the premium notice, notices of cancellation, etc., they are responsible for payment of premiums.
Because the industry has decided to adopt the phrase “additional insured” instead of something like “other insured” it is perhaps easier to understand by contrasting it with an example of “unnamed” additional insured (there is no such designation in insurance lingo that I am aware of). In California, automobile policies by law provide liability coverage to all licensed drivers who drive an insured vehicle with the consent of the owner. When someone loans a car to their friend, the friend is covered even though the friend is not named in any part of the policy. (But the policy owner, not the friend, has the obligation to report the accident).
“Additional insured,” or “AI,” usually refers to a person or entity added to the policy by an “endorsement.” Endorsements typically provide coverage to the people/businesses named on them only for claims arising out of the acts or omissions of the primary insureds. Additional insureds are not obligated to pay premiums and typically do not receive notices of policy changes or cancellations.
An “additional insured” is more common in commercial general liability (CGL) policies. Perhaps the most common application is in construction contracts, where the general contractor requires all of the subs’ to name it on their policies, and the general becomes a “named” additional insured. This is usually done by an addendum to the insurance contract or by a Certificate of Insurance. Some insurance policies automatically provide additional insurance status to parties when required from the Named Insured in a written contract, agreement, or permit.
Generally, most AI endorsements follow the Insurance Services Office or “ISO” model which is to furnish coverage to the additional insured for liability “arising out of” the named insured’s work, operations, or premises (or some variation on that theme). That is, the work or production, they are doing together, or in concert. Normally, the Additional Insured must be included with the policies’ Named Insured in the claim or litigation for there to be coverage.
Additional Named Insured (and Named Additional Insureds)
These phrases mean people or businesses named in the policy some place other than the declarations page who have the same rights as the “named insureds.”
A better way to think of this denomi-nation is by taking the first word out of either title. That is, an (additional) Named Insured or a (named) Additional Insured.
The Additional Named Insured usually does not have to bear any of the paperwork and typically are not responsible for the premium, however, they are entitled to notice of policy changes and cancellations. They have the same coverage as the “named insureds” but share the policy limits. Usually an “additional Named Insured” is an affiliate, partner or co-owner of the primary insured.
Are There Any Practical Differences?
Between a named insured and an additional named insured, no.
Each is entitled to full benefits of the policy. The difference between them and a named additional insured is not because of the name, but because of the terms of the endorsement.
Typically the endorsement limits the coverage for claims made against the named additional insureds stemming from claims made against the primary insured. They do not have coverage for claims against them which aren’t related to claims against the primary insured. An additional named insured is covered for claims regardless of whether the primary insured is named.
For example, if business A has a liability policy that names business B an additional named insured, B has coverage if it gets sued for something completely unrelated to its dealings with A. But if B is named only on an endorsement to A’s policy, and is thus just a named additional insured, it will only have coverage for claims that arise from claims made against A.
If you are confused, you are not alone. Your agent or broker may very likely be as confused as you are. If he or she cannot clearly explain the difference in coverage to you, speak with someone else in the office until you are satisfied. Then when you receive your policy, meet again with broker or agent to make sure the language reflects your understanding and wishes.
When requesting or being requested to provide insurance to another, it is important to understand you or your company’s needs first. Then to consider how the request may affect the transaction.
This article first appeared in Volume 1-3 of L+G’s Food Safety Newsletter, in October 2007.