When it comes to your insurance coverage, do you know the difference between being an “Additional” insured verses a “Additional Named” insured? If not, you should.
There is a common misconception that there is little or no difference between being an additional insured and a named insured. However, from a liability perspective, there is a BIG difference. Most people believe that so long as they are included as an additional insured on a personal or commercial insurance policy, they enjoy the same benefits as the owner of the policy itself. Yet, this is only partially true.
First, a named insured is the actual owner of the insurance policy. A named insured is entitled to 100% of the benefits and coverage provided by the policy. An additional insured is someone who is not the owner of the policy but who, under certain circumstances, may be entitled to some of the benefits and a certain amount of coverage under the policy. The named insured extends protection to the additional insured under the terms and conditions of the named insured’s policy.
It should be noted, however, that coverage provided under the additional insured endorsement is often limited to liability arising out of acts performed by or on behalf of the named insured. What does this mean? It means that if you are an additional insured, coverage will only extend to liability caused by the named insured. All other liability, for which the named insured may have coverage under the policy, will not be covered when it comes to the additional insured.
Generally, additional insured status is required by an individual or entity when the policy owner has agreed to indemnify the additional insured. A common example is the owner of real property who leases the property to a tenant. Typically, the property owner requires that the tenant indemnify the property owner from any liability caused by the tenant. As such, the tenant most often lists the property owner as an additional insured under the tenant’s insurance policy. If the tenant or its agents do something that creates liability upon either the property owner or tenant, the property owner will (most likely) be covered. However, if a third party unrelated to the tenant causes damage, the tenant may be covered but the property owner will not be covered. Likewise, if the property owner does something to create liability which is covered for the tenant under the tenant’s policy, the property owner will not be entitled to coverage under the additional insured endorsement.
Furthermore, coverage extended to the additional insured is limited and/or shared by the coverage granted to the named insured. Thus, if situation arises which creates liability for both the named insured and the additional insured, coverage under the policy is shared between the named insured and additional insured. For example, if the named insured has $100,000 in liability coverage, the additional insured will likewise have $100,000 in coverage. As such, if either the named insured or the additional insured create a liability, there will be $100,000 available to cover that liability. But, if both the named insured and the additional insured incur liability, they will be required to share the $100,000 total coverage. Therefore, a situation can easily arise when dual liability results in a shortfall of coverage.
By contrast, an additional named insured enjoys all of the benefits that the actual policy owner enjoys. In the examples illustrated above, an additional named insured will be covered from liability created by the tenant and/or the tenant’s agents as well as liability created by the additional named insured itself. Likewise, if there is $100,000 in coverage for the original named insured, there will be a separate and distinct $100,000 in coverage for the additional named insured.
Nevertheless, it should be noted that an additional named insured does not always have the privileges and/or obligations of the original named insured (e.g., the obligation to pay premiums or the right to cancel coverage or receive policy notifications).
At the end of the day, one must evaluate the expectations and desired goals/benefits to be gained through the coverage under the policy. If limited coverage and rights under the policy are sufficient, an additional insured endorsement is likely the way to go. If the goal is to obtain complete and distinct coverage from all potential liability, being included as an additional named insured is your best bet.