Risk management keeping you up at night? Worrying about loss prevention can be a nightmare. Additional insured endorsements represent a great way for getting some much-needed sleep by keeping risk closest to the parties creating it. Insurers often establish coverage for additional insureds through blanket endorsements, but without some forethought, these may not be as cozy and comfortable as you’d like. This article discusses these endorsements and the right questions to ask so blanket additional insured endorsements can provide you with a good night’s rest.
The Basic Setup
An additional insured endorsement provides coverage to a third party under another entity’s insurance policy. Additional insureds have a relationship with the policyholder, like a general contractor hiring a subcontractor, but do not pay toward the insured’s premiums. The endorsement protects the general contractor against claims from work performed by the subcontractor under the subcontractor’s insurance policy.
A property owner or general contractor typically requires additional insured status as part of its contract. Insurers commonly add this to the named insured’s policy in two ways: a scheduled endorsement or a blanket endorsement. With a scheduled endorsement, the general contractor’s name is provided to the insurance carrier and added as an additional insured to the subcontractor’s policy through an addendum. Scheduled endorsements are good because they are very specific. However, they also often get overlooked or carry errors because the ownness belongs to the subcontractor for requesting the additional insured endorsement.
As an alternative, insurers use a blanket endorsement. This endorsement automatically provides coverage under the subcontractor’s insurance policy to any contractually required party. Blanket endorsements do not require that an additional insured be specifically named. Instead, the endorsement specifies groups to which it should apply, such as general contractors or property owners for which the subcontractor is performing work. For a subcontractor associated with hundreds of construction projects a year, a blanket endorsement offers an expedient way for adding additional insureds.
The Blanket Endorsement Checklist
Blanket endorsements may be easier and quicker than a scheduled endorsement, but they are not a perfect alternative. These endorsements require some upfront planning for the coverage to work should a claim arise. Strengthen the endorsement with these questions:
1. Does a contract exist between the parties?
Blanket endorsements require a direct contract between the named insured and the additional insured, or the contract must specify all parties required to be named as additional insureds. For example, a general contractor has a direct agreement with a subcontractor which states that both the general contractor and project owner be cited as additional insureds.
2. Does the blanket endorsement sneak in contractual privity language?
Small details in the writing of the blanket additional insured endorsement make a big difference in determining who is covered. Using the previous example, the contract states that both the general contractor and project owner be cited as additional insureds even though the subcontractor and project owner do not have a direct contractual relationship. Endorsement language defining the additional insured as “any entity you have agreed to name, where required by contract” would cover the general contractor and project owner. However, language defining an insured as “any entity with whom you have entered into a contract and it is required by the contract” introduces contractual privity and limits coverage to only the parties with a direct contract – in this case the general contractor and subcontractor. Despite the contract requirement, the project owner would not be covered. Check the endorsement carefully for this very important difference.
3. Does the contract specify scope of coverage?
Naturally an insurer wants to limit exposure as much as possible. Therefore, it may impose coverage restrictions under the blanket endorsement. Common is the distinction between ongoing and completed operations. “Ongoing” provides coverage only as the subcontractor performs work, while “completed” affords coverage after the work is finished. The endorsement should extend to completed work as many errors will not be found until months or years later.
4. Do you have proof of the contractual requirement to effect coverage?
Should a claim result from the subcontractor’s work, the additional insured must have proof of the contractual agreement requiring the additional insured endorsement. Simply having a Certificate of Insurance showing the additional insured endorsement may not suffice in getting the named insured’s policy to cover the claim. As an added layer of protection, require the COI reference the contract requirement when naming the additional insured.
5. Does the contract require a cancellation notice?
Because scheduled endorsements list additional insureds by name, insurers can provide notices of cancellation to all named parties. Because blanket endorsements do not specifically name additional insureds, notices are difficult. This means that a subcontractor’s policy could lapse within the middle of a job without the additional insured’s knowledge. In the event of a claim, the additional insured not only has to assume liability but also must fight the breach of contract. While requiring a cancellation notice in the contract is a good step, the best way to fight this potential risk is using technology like myCOI which checks for active coverage automatically.
Blanket endorsements provide an easy avenue for naming additional insureds. However, quick should not come without important questions for keeping your company covered. Before suffering through another sleepless night, let myCOI provide some help.