What Is Additional Insured?

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Definition
The term additional insured means a person or entity that is covered under another party's insurance policy. Additional insureds are often included under general liability, commercial property or commercial auto policies.

Key Takeaways

  • Additional insured are people or entities that are covered under another's insurance policy
  • Additional insureds are often included under general liability, commercial property or commercial auto policies.
  • Additional insureds require a business relationship with a named insured and there should be a threat of a third-party lawsuit
  • Scope of liability coverage for additional insured may be limited to liability arising out of the business relationship

How Coverage For Additional Insured Works

Additional insured are people or entities that receive insurance coverage under another person or entity's insurance policy. One of the most common reasons for providing additional insured coverage is a contractual requirement. When one business performs work for another, the hiring company often demands coverage as an additional insured under the other party's general liability policy. The obligation to provide coverage is stipulated in a written contract signed by both parties.

A second reason for providing additional insured coverage is a government statute. A business may be required to cover a government agency as an additional insured as a condition of obtaining a permit to erect a sign over a public sidewalk. A business may also provide additional insured coverage voluntarily. For instance, a church insures its members under its liability policy for activities they perform on the organization's behalf.

Eligibility For Additional Insured

To qualify for additional insured coverage, a person or entity must meet certain requirements. These vary by the type of coverage.

General Liability Coverage

To be included as an additional insured under a liability policy, a person or entity must have a business relationship with the policyholder (named insured). Here are some common business relationships that create a need for additional insured coverage:

  • Landlord and tenant
  • General contractorand subcontractor
  • Property owner and general contractor
  • Government entity and permit holder
  • Vendor and product manufacturer

A second requirement for additional insured coverage is a risk of lawsuits as a result of the policyholder's negligence. For example, suppose you lease office space from a commercial landlord. If you fail to keep the entrance to your premises tidy, a customer could sustain trip and fall injury while entering or exiting your office space. The injured party might sue you for bodily injury. He might also sue your landlord, contending that the building owner knew your premises was cluttered but failed to require you to clean it up.

Landlords know that they are viewed as "deep pockets" by potential claimants. Thus, your lease will probably require you to include your landlord as an additional insured under your general liability policy.

Auto Liability Coverage

The requirements for additional insured under auto liability insurance are the same as those for general liability.

Note

The party seeking coverage must have a business relationship with the named insured (policyholder) and face a risk of third-party lawsuits as a result of negligence committed by the named insured.

For example, Busy Builders, a general contractor, hires Luxury Landscaping to plant new gardens at a medical complex Busy is refurbishing. Busy's owners know that under certain circumstances, Busy could be held vicariously liable for injuries sustained by a third party in an auto accident caused by a Luxury Landscaping employee. Busy could be responsible if, say, the accident occurred while a landscaping employee was running an errand on Paul's behalf. To protect the general contractor, Busy Builders' owners ensure that Luxury Landscaping has purchased auto liability coverage under a business auto policy.

If Busy Builders is sued by a third party for injuries sustained in an auto accident caused by a Luxury Landscaping employee, Busy should be automatically covered under the landscaper's auto policy. No endorsement is needed. The omnibus clause in the policy covers as an insured anyone who may be vicariously liable for the conduct of the named insured.

Property Insurance

To qualify as an insured under another party's property policy, a person or entity must have an insurable interest in property covered by the policy. For example, suppose you operate a restaurant in a building you lease from Red-Letter Realty. The lease requires you to insure the building under a commercial property policy that includes Red-Letter Realty (the owner) as an additional insured.

Scope of Coverage

The coverage afforded to additional insureds is usually limited in some manner. The applicable limitations may be described in an endorsement or in the policy itself.

Note

An additional insured is usually covered only for claims that arise out of the work or operations the named insured is performing on the additional insured's behalf.

This means that a general contractor is an insured under a subcontractor's policy only for claims that arise from work performed by the subcontractor on the the general contractor's behalf. Likewise, a landlord is generally covered under a tenant's liability policy only for claims that arise from the tenant's use of the leased premises.

Under a property policy, an additional insured is covered only for its insurable interest in a specific piece of property. Red-Letter Realty (in the previous example) is covered under your property policy for its ownership interest in the building. It is not an insured with regard to any other property covered by the policy, such as contents that belong to you.

Frequently Asked Questions (FAQs)

What is additional insured on an insurance policy?

Additional insured is a term used to describe a person or an entity covered under someone else's insurance policy. The person who owns the insurance policy is called the named insured. Additional insured entity needs to have a business relationship with the named insured and the scope of coverage is typically limited to that relationship. Additional insureds are often included under general liability, commercial property or commercial auto policies. 

What is the purpose of an additional insured endorsement?

Additional insured endorsement is the insurance coverage provided to a person or entity named additional insured on someone else's insurance policy. Typically, it the coverage is restricted to third party lawsuits arising out of the business relationship between the additional insured and the named insured. For example, a customer is injured due to poor maintenance at a business and sues the business and the building. If the business had an additional insured endorsement to include the landlord of the building, they may be covered.

Article edited by Marianne Bonner

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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Acquisitions.gov. "552.228-5 Government as Additional Insured."

  2. Insureon. "Additional insured."

  3. County of Sonoma. "Additional Insured Endorsements."

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