A named insured is an important term in insurance, representing the policyholder who is being covered by an insurance policy. In this blog, as part of our ongoing Certificates of Insurance 101 blog series, we’ll be discussing the differences between a named insured, an additional named insured, and an additional insured.
What Is An Insurance Certificate Holder?
An insurance certificate holder in most cases is the general contractor, business owner, or building owner who is hiring labor out to subcontractors or vendors. This person or business is not an insured unless they are named an additional insured on the sub’s or vendor’s insurance; this is where people can get into trouble if they don’t know what to look for and what pitfalls await. You, as the hiring party, do not receive any coverage under the policy.
The certificate holder has no right to make a claim against the policy or receive any money as a result of a claim made. Without parsing words, they are quite literally just physically (or digitally) holding the certificate of insurance (COI) that shows their contractors and vendors have insurance to cover themselves.
What Is a First Named Insured?
Let’s start by going over the named insured definition. A named insured is the person, people, or business(es) that own and are covered by an insurance policy. You could also refer to them as policyholders or a primary insured.
Multiple people can be a named insured for a policy; however, the first named insured, or the entity listed first on a policy, will be granted certain rights not granted to others on the policy. For example, you and your business partner could both be covered under one policy and be able to make changes to it, but the first named insured will generally hold primary responsibility.
Again, the named insured is the entity whose name appears at the top of an insurance policy and receives protections from the policy. They’re also typically the one who purchases the policy, makes decisions about their coverage, and pays for the coverage in the form of monthly premiums.
What Does Secondary Named Insured Mean?
The second person listed on an insurance policy is also known as the secondary named insured. While there can be multiple named insureds on an insurance policy, only the first one will be considered the primary policyholder. A secondary named insured will have the same coverage under the policy as the named insured. The declarations page, one of the first pages of a policy’s documentation, is where all of the named insureds will be listed.
What Is an Additional Named Insured?
Next, let’s discuss the difference between a named insured vs. an additional named insured. Similar to the above, an additional named insured is someone other than the policyholder, or named insured, who receives coverage under the policy. They’ll enjoy the full coverage and rights of a policy even though they won’t be the primary person in charge. Both parties will be notified of changes to the policy and be able to modify it.
An additional named insured example would be if you and your business partner wanted to seek coverage. Let’s say that you are the one who has taken on handling the insurance side of the business—just because you’re doing the work doesn’t mean your partner doesn’t need coverage. You’d seek out the correct policy for your needs, be listed as the named insured (first person on the document), and they would be listed as an additional named insured.
Who Can Be an Additional Named Insured?
Anyone can become an additional named insured! Typically, an additional named insured will be someone close to the policyholder or relevant to their business dealings. For example, a co-owner, vendor, or family member are some common examples of secondary and additional named insured parties.
What Does It Mean To Be an Additional Named Insured?
Being listed as an additional named insured on a policy simply means that you’re also on a policy, along with a primary named insured, who is someone more in charge of the policy. Often, a business will be listed as the named insured, but the owners or subsidiaries will be listed as additional named insureds, able to make changes to the policy and responsible for the payment of its premiums. Additional named insureds will have the same rights as named insureds; just typically won’t be the ones in charge of paying those premiums.
Next, we’ll dive into a term that sounds similar (additional named insured vs. additional insured) but has different implications.
What Are The Differences Between a Certificate Holder Vs Additional Insured?
The most significant difference between a certificate of insurance holder and an additional insured is who is responsible for the policy’s premium and, consequently, who is responsible should a claim happen. The policyholder is responsible for paying the full amount of the premium listed on the policy if they add an insurance certificate holder as an additional insured to their policy. This also means they, the party holding the insurance, are responsible for incurred damages per their insurance policy. This type of liability insurance protects the property owner or general contractor from liability.
The additional insured is responsible for paying none of the premium listed on the policy. The other main difference is who receives copies of claims made against the policy. An insurance certificate holder receives a copy of every claim made against the policy. They also receive a copy of any correspondence between the insurer and the policyholder. An additional insured receives only a copy of the claims made against the policy in which they are named.
Picture this: you’ve hired a team of subcontractors to build a new fast-food restaurant. Your carpenter drops a beam and injures one of the other subcontractors’ workers. The party at fault has named you as an additional insured, so you are covered and have no liability. If they hadn’t named you, you would be on the hook for any damages.
When to Add an Additional Insured to Your Policy
If you are buying a new policy or operating at a new site under a new contractor, adding them (the new site owner or contractor) as an additional insured to your policy protects you from any future claims as specified for the time on the COI. You might also add an additional insured to your policy if you are buying commercial property insurance. If the people who own the property where your business operates are insured under a policy that covers the property, adding both of them as additional insureds to your insurance policy will protect you from any losses that occur as a result of a claim made under the property policy.
The bottom line is if you are having anyone work on your property as a contractor, tenant, or as a vendor, they need to name you as an additional insured on their insurance policy AND you need to verify that on the COI they give you BEFORE they do any work whatsoever. Best practices in this area maintain that you verify this coverage with the sub’s or vendor’s insurance agent. Fraud does happen. It’s in your best interest to learn how to verify insurance coverage before the work starts.
What Is an Additional Insured?
An additional insured is someone added to an insurance policy. Usually, they’re added after a policy has already begun, and their coverage is listed as an addendum to the contract (also known as an additional insured endorsement or rider). An additional insured will not have to pay for any of the policy, and they won’t have the right to alter it in any way, but they can enjoy the free coverage of someone else’s policy. Adding an additional insured endorsement to a policy sometimes comes with a small fee, but it’s a much more economical way for a party to get coverage than to seek coverage by purchasing a policy of their own.
An additional insured example would be if you were a construction company hiring a third-party subcontractor for a new project. You could, as a condition of hiring them, ask them to extend their liability coverage to list your company as an additional insured. This would make it so that your company is covered in the same way that your contractor is, promoting safety and trust for everyone involved. To confirm that they have adequate coverage for the job and to ensure that they have correctly named you as an additional insured, you should verify their business certificate of insurance (or COI). Learn how myCOI can help you manage your insurance certificates and know when to be listed as an additional insured.
Is Named Insured the Same as Additional Insured?
A named insured is not the same as an additional insured. Essentially, a named insured is the main one on a policy—they’re listed first, they sought out the policy, and/or they pay for it. Conversely, an additional insured is listed later in a policy and has been added onto it sometime throughout its duration. An additional insured does not pay for a policy and typically won’t receive notice of policy changes, but they receive the benefits of its coverage and can file a claim if sued. Once added, both names will be listed on the policy and in pertinent certificates of insurance, with, of course, the named insured always coming first.
Why Would a Company Want To Be Named as an Additional Insured?
There are various reasons why a company would ask to be named as an additional insured on another party’s policy. Most of them have to do with protecting themselves from risks that could arise from their specific business activities. Essentially, anyone with a risk of being sued due to a connection to a named insured’s work should consider being added as an additional insured. Here are a few examples:
- Let’s go back to our example of your construction company hiring a subcontractor for a project, which is a common case where companies push for additional insured endorsements. In this contractual agreement, where you are listed as an additional insured through an endorsement, you’ll get protection under the subcontractor’s liability insurance. Then, if a third-party injury or property damage occurs during their work, your company’s interests are safeguarded, and the subcontractor’s insurance acts as the primary source of coverage.
- Landlord-tenant relationships are another scenario where the concept of additional insureds commonly comes up. Let’s say that a commercial property owner leases out spaces to tenants. The tenants will all already have to get insurance policies of their own to cover business activities that could lead to liability claims, such as a customer getting hurt on the property. Landlords will often ask to be listed as an additional insured so that in cases like those, they are not held financially responsible because they are protected by the tenant’s coverage.
- Another case where additional insureds could come up is in the event of joint business ventures. Sometimes two separate companies who are working together can ask to be named as additional insured on the other’s policy. This arrangement would ensure that both parties share in the protection and, in the case of claims, have access to coverage provided by the other party’s insurance.
Can a Named Insured Sue an Additional Insured?
Being named as an additional insured gives you an extra layer of protection because you are covered by another party’s insurance as well as whatever other policies you may have. It is a measure of protection that reduces the liability for the additional insured in the case of third-party claims. However, sharing the same coverage through an additional insured endorsement doesn’t eliminate the possibility of claims happening between parties.
To prevent being sued by a named insured who has added your business as an additional insured, you should also request a waiver of subrogation from them. A waiver of subrogation is an agreement between parties to waive the right of one of them to go after the other to seek financial losses for their negligence. It’s a way to reduce the likelihood of suing or litigation between sides. Waivers of subrogation and additional insureds are often used in conjunction to create optimal, trustworthy, and low-risk business relationships.
Need More Help With Additional Insureds? myCOI Has You Covered
Insurance is a complex industry, and it’s important to understand concepts like named insured, additional named insured, and additional insured. If you’re searching for a team of industry experts to help you monitor your compliance, reduce the number of claims you’re faced with, and assist you with the day-to-day decision-making related to coverage, we’re the ones for you. Request a demo today.