In business, many companies have business relationships with other organizations. While this is a common part of doing business, there is a risk of being exposed to a lawsuit when involved or associated with another organization. It is because of this risk that companies may request to be added to your insurance policy as an additional insured on a certificate of insurance.
Why? One company may unintentionally cause an accident or injure someone. Under these circumstances, the injured individual may sue that company; and yours for damages. Here is an example that explains how this scenario can occur:
Calgary Gemstones operates a jewellery store in a retail location that they rent from XYZ Corp. A customer is seriously injured by a ceiling fan that fell while they were in the store. The injured customer sues Calgary Gemstones and XYZ Corp for compensation.
In this example, the negligence caused by one business has triggered an accident that ended up with a claim being filed against the other. If Calgary Gemstones and XYZ Corp had additional insured coverage under each other’s general liability policies, they would have some protection. Keep in mind that additional insured endorsements provide limited protection as the coverage is usually tied to the premises, work or services that the business relationship is based on.
Understanding Additional Insured Endorsements
In most cases, additional insured coverage is provided via an endorsement. Some endorsements will provide blanket coverage to anyone or organization that meets their policies definition of additional insured. Other endorsements are very specific, only covering the company or individual listed on the certificate.
There are common additional insured endorsements that insurance companies have designed to cover certain types of industries or businesses. For example, there are some specific ones for landlords, general contractors, and project development owners.
How Does Additional Insured Coverage Work?
In order to qualify for coverage as an additional insured, your company must have a business relationship with the business that you are being added as an additional insured to, which is referred to as the named insured. Furthermore, their corporate activities have to present a risk of third-party lawsuits against your company.
The coverage designated to your business under an additional insured endorsement should be covered on a primary basis. This means, that if a claim is filed against your company that is covered by the endorsement, the policyholder’s insurance will pay to cover the claim first. You would only need to fall back to your own liability policy if your additional insured coverage maximum limit has been reached.
To find out more about commercial insurance and additional insured endorsements, contact an experienced member of the Bow Valley Insurance team today for a free, no obligation quote.