Certificates vs. Additional Insured Status
A Certificate of Insurance is no more or less than a “snap-shot” of your insurances, and bestows no rights on the recipient of the Certificate. The actual Certificate reveals the various kinds and types of your insurance policies: policy dates, and coverage limits.
An "additional insured" is an entity, person or business that seeks insurance protection under another entity’s insurance, for the purpose receiving protection generally required by contract or agreement. The additional insured has the right to access the named insured's policy directly and can tender a defense to it. Relying on the other party's insurance policy rather than its own is generally preferred because it allows the additional insured to:
reduce its claims exposure or rating
increase its limits by using its own policies as excess,
avoid self-insured retentions or deductibles (or the direct costs for entities that self-insure or maintain their own captives),
potentially avoid subrogation, and
potentially obtain coverage it would not otherwise have.
There are many different types of additional insured endorsements: Additional Insured (AI) Owners, Lessees or Contractors – Scheduled Persons or Organization, Additional Insured (AI) Owners, Managers or Lessors of Premises, AI Vendors, AI Designated Person or Organization, Blanket AI endorsements et cetera – literally hundreds of different types of AI and AI status.
Before seeking Additional Insured status or granting AI status to anyone contemplate the following:
What is the motivation for anyone to desire additional insured status, or want to be added as additional insured?
1. Close relationship with the additional insured. 2. Business relationship with the additional insured – contract, agreement, lease or other. 3. AI status may be preferable if hold harmless agreement is unenforceable. 4. Secure direct policy rights with respects to defense costs. 5. Commonly prohibits subrogation action. 6. Affords vicarious liability for the named insured's actions and/or direct liability for additional insured's actions.
What are the potential problems for you by granting additional insured status to anyone?
1. Watering down of your policy limits by the sharing of your limits with the additional insured or insureds. 2. Exhaustion of limits. 3. Unintended coverage 4. Defense conflicts. 5. Potential compliance problems.
What are the potential problems or pitfalls for the additional insured?
1. Forfeiture of defense control. 2. Increased possibilities of clashes or disputes over coverage 3. Other insurance conflicts - equal shares verses primary and non-contributory 4. Coverage provided and type of coverage, depends on edition date of the policy and/or endorsement. 5. AI status classically provides only contingent liability protection instigating potential issues if AI is solely implicated in legal action.
What’s the “bottom line?”
Naming anyone as an additional insured under your policy; for which you have paid a premium, and from which you expect insurance protection is not always a good idea. The practice of naming anyone as an additional insured should be practiced sparingly.