You Probably DON’T Want To Be an Additional NAMED Insured!

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Bottoms up! Or, said otherwise, let’s start with the bottom line. ON BALANCE, you’d rather be an additional insured on someone else’s liability policy, not an additional named insured. For one, it isn’t even clear what is meant by “additional named insured.” There is a named insured and there is an additional insured. There are also some people who are automatically insured. (Those are employees and other people similarly related to a named insured.)

Look as you will in a commercial general liability (CGL) policy, but you won’t find an “additional named insured.” Search all you want, you won’t find a pre-arranged policy endorsement designating an “additional named insured.” Insurance professionals don’t agree on what one is, though they know what one might be. So, if they don’t know, why do some attorneys and other lease negotiators insist they know? Our guess is that it sounds better than a plain old “additional insured.” After all, “‘when I use a word,’ Humpty Dumpty said, in rather a scornful tone, ‘it means just what I choose it to mean — neither more nor less.’” [Through the Looking Glass, by Lewis Carroll].

There being no standard definition, let’s start with what we do know. When a CGL policy says the “insured,” it means both named insureds and additional insureds. CGL policies have at least one named insured. That’s important because the named insureds after the “first” one don’t have equal standing. The words “you” and “your” in a standard CGL policy refers to named insureds, not additional insureds. That’s important to know because to understand the difference between being a named insured and being an additional insured turns on those two words in the policy – “you” and “your.”

The “first” named insured gets some special benefits. That’s important to know because everyone agrees that an “additional named insured” is “additional,” never the “first” named insured. The special benefits to being the “first” named insured are: (a) it can authorize policy changes, including a cancellation; and (b) it gets notices of cancellation and non-renewal. So, if anyone thinks that being an “additional” named insured means that you’ll get the notices, you’re wrong. It’s also wrong if anyone thinks you’ll know if the policy was changed.

What do the other “named” insureds get that just plain, old “additional insureds” don’t get? They get the right to be liable for repaying the deductible to the carrier. They get the right to have the same duties to the carrier in the event of an occurrence, claim or suite as does the first named insured. They get the right to be bound by representations made to the carrier.

Yes, a named insured (and, by implication, an “additional” named insured) has to comply with stricter claim reporting requirements than does an additional (not named) insured. Also, there are certain policy exclusions, such as some property damage claims, that are excluded from coverage for an additional named insured, but not for a mere additional insured.

There appears to be one benefit extended to an additional named insured that is not extended to an additional insured – its directors, officers, and employees are also covered. That may or may not be important given that very few suits include those individuals and also that any party who is not carrying its own liability insurance “ain’t so smart” (in Ruminations’ humble view).

So, why was the bottom line: “ON BALANCE, you’d rather be an additional insured on someone else’s liability policy, not an additional named insured”? Here’s why: As an “additional named insured,” you get less coverage (yes, you are subject to more exclusions; you become obligated for the deductible (though not the premium, a “privilege reserved to the first named insured”; you undertake enhanced reporting obligations; you don’t get any different notice rights; and, you still have no control whatsoever over the terms of the policy or its early termination. Let’s repeat the very first item in a different way – an “additional” insured has greater coverage than an “additional named insured.”

Have any of us who have ever insisted or fought hard to get someone added as an “additional named insured” ever seen the endorsement that does such a thing? I doubt it. But, if you insist on seeing such an endorsement, expect what is called a “manuscript” endorsement. That’s one written from scratch on an otherwise blank form. What this means is that you have no idea what it is going to say, because it hasn’t yet been written. That being the case, why would anyone think it is better to be an “additional named insured” if there isn’t any such thing in the policy in the first place?

Are there any insurance gurus out there who want to pick a fight? Applications are being accepted at www.retailrealestatelaw.com.

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Comments

  1. David Messer says:

    Question: If listed as an “additional insured”, is coverage derivative to the named insured? That is, if an exclusion applies to the named insured, does that mean the additional insured is also not covered. If so, does that also apply to an “additional named insured”?

    • David, that’s a good question. Both are treated as “Insureds” under the CGL policy. That means they each have the same coverage except where the policy says otherwise. The CGL policy specifically imposes some duties on a named insured that are not applicable to an additional insured. Similarly, the CGL policy adds exclusions for the named insured by saying “you” shall not be covered for … . “You” refers to the named insured, not to a mere additional insured. The “plus” for a named insured is that the policy says it covers “your” employees, etc. So, that means that employees, etc. of a mere additional insured are not covered.

  2. Ira,

    This article challenges my understanding of the named insured and additional named insured negotiations. I’m hoping that an insurance guru does pick a fight because your article makes me question my habitual rejection of the other side’s occasional request to be an additional named insured, or possibly even to be a named insured (most requests are simply to be an additional insured). Is it your belief that a third party’s request to be a named insured on a policy would automatically be “additional” to the first named insured without language to the contrary? If so, this article makes me think I should allow both the named insured and additional named insured requests, to the other side’s own detriment! Actually, I’d have to first convince my clients that it’s to their advantage to allow the third party’s request since it still sounds more powerful to be an additional named insured.

    I was mentored by one of the smartest in the leasing business and I never thought that the additional named insured issue was as your article has described. I hope there’s some good back and forth to follow.

    • Harry T. Spikes, Esq. says:

      Question: (“Fact”) A owner of real property , pursuant to contract between the owner and the Bank, is required to maintain coverage on the property for the protection of the Mortgagee’s collateral interst and do so adequately, however, the Mortgagee issues an Additional Named Insured Cerfiticate on the already insuraed property, does the Additional Insured Certificate constitute Collateral Coverage for the Mortgagee ? Does the Additional Named Insured Certificate provides only liability coverage ( third Party Liability Coverage) which is or is not for the protection of the Mortgagee’s collateral interest? Does the Additional Named Insurance Certificate constitutes a separate policy from the Property owner’s collateral coverage for the benefit of the Mortgagee? Does the Property Owner deserves prior notice of the application of Additional Named Insured Certificate notice?

  3. Always appreciate your insights. I’ve heard this discussion before somewhere, but it’s nice to get a refresher on insurance issues.

    Best,
    Greg Swedelson

  4. Excellent post Ira. This is consistent with what I was told by an insurance guru for one of my clients and further clarifies these concepts for me.

  5. Margaret Petersen says:

    I’m no insurance guru, but have spent a lot of time as in-house counsel (to a developer / landlord and then to a retailer) working directly with the companies’ insurance programs. Bottom line, as Ira notes, there’s a “named insured” (the insured party plus any subsidiaries on the particular policy) and “additional insureds,” which are third party companies entitled by contract (e.g., a lease or construction or other contract) to defense under the policy. As I think Ira is saying, there really isn’t an “additonal named insured” unless you’re talking about the more than one insured entity on the policy. For specific example, at my most recent employer, “Borders Group, Inc.” was initial listed named insured and the multiple subsidiaries, e.g., Borders, Inc., were also treated as named insureds. There may have been some in the weeds differences in the policies’ fine print between the parent and the subsidiary entities (like to whom the premium invoices were addressed…), but for our purposes in (usually) focusing on respective coverages between two independent parties, like a landlord and a tenant, I don’t think it’s something that needs a lot of attention. If one works in the “risk management” department for the company, yes, one needs to pay attention to this stuff, but, say, in negotiating a lease the real distinguisher is “named insured” (the party that has the direct insurance coverage) and “additional insured” (the party that receives “defense” coverage if a claim is brought against the additional insured, which occurrence is otherwise something to which the named insured’s policy is to respond. The classic examples are trip/slip-and-fall either in the Common Area (LL’s CGL policy to respond) or within a tenant’s premises (tenant’s CGL policy to respond). If the former occurs and a claim is brought against the LL and the tenant, for example if the incident occurs in the Common Area in front of but not in the tenant’s premises, then the LL’s policy should respond and should also provide defense to the tenant. The LL’s CGL carrier presumably will look at all the circumstances to see if the tenant itself happened to cause the incident, even if it occurred w/in the Common Area, in which event let the games and battle ensue between the LL’s and the tenant’s CGL carriers, but absent something weird w/ the facts, the foregoing would be the general case. The reverse would then be the case if the incident occurred within the tenant’s premises, i.e., tenant’s CGL carrier responds and provides defense for both the [named] insured tenant and the additional insured LL.

    One could go on and on (and I’ll resist…) w/ respect to related issues, but I’ll note one thing further – I always find this kind of interesting: Having a certificate of insurance from the named insured doesn’t make the certificate holder an additional insured. BUT having a certificate of insurance that specifically states that the certificate holder is an additional insured, although the best case, does not mean that NOT holding a certificate stating that status makes one NOT an additional insured. (OK, that’s lots of “nots”…) If the contract, such as the lease, states that a party who is a named insured confers and agrees to additional insured status on the other party, then, under the named insured’s “contractual liabilty” provisions in its insurance policy, the party whom the named insured has agreed to recognize as an additional insured will have that additional insured status. The named insured has contractually agreed to that additional insured status and, assuming there’s good contractual liability language in the named insured’s policy (and very likely there is – it’s a fairly standard provision, and you can likely take it to the bank that a sophisticated LL or T will have this provision in its policies), the insurance company is bound to recognize that third party as an additional insured BECAUSE its named insured has contractually agreed to do so. Getting a certificate of insurance that includes the remark or notation of additional insured status is best, but it’s generally a decent risk to take to not insist on such a certificate of insurance (tenants sometimes just can’t get them from LL’s) so long as the other party is in all likelihood going to have a sophisticated insurance program, and so will have contractual liability coverage, AND so long as the contract, such as the lease, includes the named insured’s agreement that the other party will be considered an additional insured. Fascinating, huh?

    Ira, as always, thank you for introducing these “real world” topics!

  6. All very interesting comments. I will add that I have been advised that from an underwriting standpoint, if another party is added as “named insured”, the risk history of the added “named insured” now comes onto play when setting rates for the policy. Any thoughts on that?

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