Does that blanket cover you? Additional Insureds - Part II
Additional insured (AI) status is a common and effective method for protecting one party (the indemnitee) from certain risks that may arise from the actions of another party (the indemnitor). It is routinely required in contracts and leases and is typically evidenced on the certificate of insurance (COI) issued to the indemnitee by the insured.
Although COIs are the used to “verify” that the indemnitee has been added as an additional insured, a COI is not part of the policy and may not be binding on the insurer. A proper grant of AI status must be effected through notification and approval of the request by the carrier. And the strongest way for the indemnitee to ensure that such approval has been granted is to request proof through provision of one or more additional insured endorsements.
In a business environment where there is a high demand for issuance of AI status, such as with contractors who may have hundreds of requests in a given year, there are inherent risks of administrative error and oversight of the process. Failure to forward the request to the insurer, or to continue to confer the AI status upon policy renewal can lead to breach of contract and unintended exposure to the indemnitee. In the event of a loss a coverage dispute will become inevitable and until resolved may necessitate the indemnitee to tender the claim to its own insurer.
The introduction of blanket additional insured endorsements avoids the chance of error or oversight in providing AI status to the indemnitee. Typically, these endorsements contain language that automatically provide AI status to the indemnitee when the indemnitor agrees to do so, such as by written contract.
Although the benefit of automatic coverage available through use of blanket AI endorsements is obvious, there are some drawbacks. Use of manuscripted endorsements vary in language and may contain exclusions or termination of AI status upon completion of the contracted activity. Use of blanket AI endorsements also make it difficult for the insurer to provide notice of cancellation to additional insureds. AIs may try to obtain a guarantee of notice of cancellation by including language on the COI, but this cannot be relied upon. From a practical standpoint, when blanket AI endorsements are used the insurer generally doesn’t know who the AIs are unless a claim is made, so they cannot issue cancellation notices to unidentified AIs.
Best Practices
Blanket AI endorsements are useful tools to reduce paperwork and the possibility of error or oversight. When used properly, they can be managed fairly effectively:
- Make certain the AI requirement is part of a written and properly executed contract.
- Retain copies of all contracts for a period of five years, particularly if completed operations coverage was required.
- The minimum scope of coverage provided should be stipulated in the insurance requirements of the contract. This could be by reference to the equivalent of that provided under one of the standard ISO endorsements, such as CG 20 10.
- Use AI blanket endorsements that have been standardized and tested in the courts.
- The CG 20 38 endorsement is increasingly being favored over CG 20 33 as there is no direct contract requirement for the endorsement to apply. Thus, if a subcontractor, for example, is required in the general contractor/subcontractor agreement to add the project owner as an additional insured, the CG 20 38 would include the project owner even though the subcontractor has no direct contractual relationship with the project owner.
It should go without saying - always ask for a copy of the AI blanket endorsement. Just because it says AI is provided on the COI doesn’t make it so. If a loss occurs you need to make sure that you actually have a blanket, that it fits, and you are covered, warm and safe.
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