The last issue of Coverage Concerns addressed some of the pitfalls that may arise by becoming an additional insured on another insurance policy.(1) Once you have decided that you want to be an additional insured, and you have negotiated for that status, how can you be certain that your company is actually covered for the liabilities it is concerned about?
Consider, for example, the following scenario: ABC Company agreed by contract to make your company an additional insured under ABC’s general liability policy, because of a construction project the two companies are working on. The project lasts three years. An accident happens just before the completion of the project, injuring a bystander, and the bystander sues both your company and ABC Company. You request a defense and coverage from ABC’s insurance carrier. The insurance company denies coverage because your company was named as an additional insured under the first policy in place two years later during the project, but not under the policy in place when the accident happened. Alternatively, suppose the insurance company denies coverage because the policy excluded coverage for professional engineering services, and your company was sued because of alleged negligence in providing professional engineering services.
What do you do now? You could sue ABC Company for breach of contract for failing to have your company named as an additional insured. That will cost money and take time. And what if ABC Company is bankrupt? What can you do up front to avoid these problems and protect your company?
1. Get a copy of the policy. No matter what representations or promises are made in a contract, the only way to be certain that your company is covered is to obtain and carefully review a copy of the insurance policy or policies on which your company is to be named an additional insured. When you review the policy, be certain that your company is named properly as an additional insured. Read the coverage provisions and exclusions carefully to be certain that your company is actually being covered for the liabilities you are concerned about. If you discover any coverage problems or questions, it is easier to resolve them with the other named insured and with the insurance company before any claim is made.
2. Demand certificate holder status. In addition to getting a copy of the policy, request certificate holder status. As a certificate holder, request notice of policy cancellation. Under some insurance policies, notice of cancellation is only provided to the “first named insured” or “named insured,” as the owner of the policy. By requesting certificate holder status and notice of policy cancellation, you can avoid having the policy cancelled without your knowledge.
3. Mark your calendar with renewal dates for the policy, and be certain that you remain an additional insured for the entire time you have negotiated. In some circumstances, your company needs to remain an additional insured on another company’s liability insurance policy for more than one year or more than one policy period. Companies are sometimes surprised (and distressed) to learn when a claim arises, that the initial insurance policy expired, and no one remembered to add your company as an additional insured on the renewed policy. When renewal time comes, send a reminder to the company who owes you additional insured status to remind them to add your company as an additional insured on the renewed policy. Also, remind them to send you a copy of the renewed policy. Review that policy carefully to be certain that your company has been named properly as an additional insured, and again check the coverage terms.
Taking careful steps to confirm your status as an additional insured is like an “ounce of prevention.” Careful review and confirmation up front can avoid serious and expensive liability exposure if a claim arises.
(1) “What’s in a ‘Named’”? The Additional Named Insured v. Additional Insured Debate