Followers of our blog know the importance of requiring additional insured endorsements from downstream third parties. Think of endorsements as an amendment to the standard insurance policy and additional insured is just one of many types. In this article, we provide guidance on insurance endorsements and why they are such an important part of a policy.
Insurance Policy Components
Before we dive into endorsements, let’s start with an insurance policy’s components. Sections regarding who is covered, what is covered, and when coverage applies help organize a policy. These sections include four key items:
- Declarations – provides important policy information including the named insured, the amount of coverage, premiums and deductibles, and a listing of the forms comprising the policy.
- Insuring Agreement – lists what the policy covers. The agreement includes broad causes of loss covered and a summary of the promises of the insurer.
- Exclusions – policy provisions that eliminate coverage due to a type of risk. Exclusions narrow the scope of coverage provided in the insuring agreement for risks the insurer is unwilling to cover.
- Conditions – details the coverage terms and what requirements must be present for coverage. Conditions include items like loss reporting and settlement, property valuation, subrogation rights, and cancellation and nonrenewal.
Think of endorsements as part of a math equation. First, the insuring agreement broadly details what the policy covers. Second, exclusions subtract from the items covered. Endorsements then add covered items to the policy. Endorsements can bring back things excluded from the policy or add new items not addressed in the insuring agreement. Insurers use endorsements in many ways, but common applications include:
- Amending the standard policy so it is tailored to the unique needs of the policyholder.
- Extending coverage from the named insured to third parties as is the case with additional insureds.
- Modifying coverage terms such as a waiver of subrogation or indemnification.
- Including coverage extensions that broaden items addressed in the policy, such as incorporating newly acquired property with existing properties.
Most insurance policies take a standard form. However, no two businesses or business relationships are exactly alike. While standard insurance policies include broad provisions that work for most insureds, a one-size-fits-all approach is insufficient for maximizing risk mitigation. Endorsements allow insurance policies to address specific business needs for loss prevention.
Amendments to the insurance policy also handle the requirements of third parties when entering into a contractual agreement. If your company requires certain endorsements, such as being named as an additional insured or adding an indemnification clause, request a certificate of insurance (COI) and a copy of the endorsement(s) from the third party to validate compliance. This proves the third party’s insurance provider acknowledged the existence of the contractual relationship and amended the policy per the specifications of the agreement with your company.
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