Understanding Auto Policy: Additional Insured Explained

An additional insured is a person or entity that is covered by an insurance policy but is not the policyholder. This status is typically associated with general liability insurance policies, which provide coverage to individuals or groups not named in the original policy. In the context of auto insurance, an additional insured endorsement ensures that the additional insured person or entity is protected under the named insured's policy and can file a claim if they are sued. This is particularly relevant in construction risk transfer, where subcontractors are often required to name upstream parties as additional insureds on their auto insurance policies.

Additional insured vs additional interest

When it comes to auto insurance policies, it is important to understand the difference between an additional interest and an additional insured. While both terms refer to parties that can be added to a single insurance policy, they serve different purposes and have distinct rights and protections under the policy.

Additional Interest:

An additional interest is an entity, such as a person or organisation, that has a vested interest in the insured item or property. They are typically third parties who benefit from knowing that an insurance policy is in place but do not require coverage themselves. For example, if you finance your vehicle through a loan or lease, the lender or leasing company may request to be added as an additional interest to your car insurance policy. This ensures that they are notified of any changes to the policy, such as cancellations, lapses in coverage, or renewals. Adding an additional interest does not increase the premium for the policyholder and does not provide coverage to the additional interest.

Additional Insured:

On the other hand, an additional insured is a person or entity that is jointly insured on your policy and has a financial stake in the insured property. They are typically added to the policy through an endorsement or amendment. Additional insureds are covered under the policy and have the right to make claims. For example, if you lease a car, the leasing company should be named as an additional insured. This way, if the car is totalled during the lease, they will receive a payout from the insurance policy. Similarly, if you have a co-owner for your vehicle, they should also be listed as an additional insured.

In summary, the key difference between additional interest and additional insured is that additional interests are notified of changes to the policy and have a vested interest in the insured item, while additional insureds are covered under the policy and have the ability to make claims. Adding an additional insured to your auto policy may impact your premium if they are also a listed driver.

Who is eligible for additional insured coverage?

To be eligible for additional insured coverage, a person or group must have a business relationship with the named insured. They must also be at risk of being sued if the policyholder is deemed negligent. This typically applies when the primary insured must provide coverage to additional parties for new risks that arise out of their connection to the named insured's conduct or operations.

For example, in vehicle insurance, a typical Personal Auto Policy with additional insured provisions will cover not only the original named insured that purchased the auto policy but will also cover additional persons while they are driving the auto with the permission of the named insured. This is a simple type of blanket additional insurance arrangement, as it automatically applies to many persons without naming them individually.

In liability insurance, all directors, officers, and employees of a named insured company will enjoy the status of being an insured person, as long as they are acting in their capacity of carrying out the business of the named insured company. If they deviate to pursue their own affairs, they lose this extension of coverage.

The usual reasons for including other parties as additional insureds are due to the close relationship or legal requirements between the original named insured and the additional insured. In most cases, it is beneficial for a party to be covered as an additional insured on the policies of other parties because this will reduce the loss history of the additional insured and lower its premiums.

Adding an additional insured and the cost

An additional insured is a person who is jointly insured on your policy and has a financial stake in the insured property. They are covered under the policy and can file claims. This type of status is associated with general liability insurance policies, and the additional insured can be added through an amendment called an endorsement.

In the context of auto insurance, an additional insured is typically someone who lives with you and has access to your vehicle, such as a partner, teenage children, or roommates. Adding an additional insured to your auto policy can impact your premium costs, depending on the driver's age, driving history, and experience. Inexperienced or high-risk drivers will typically increase insurance costs, while adding a low-risk, experienced driver may lower your premium.

The process of adding an additional insured driver to your auto policy is straightforward. You will need to contact your insurance provider and provide them with the necessary information about the additional driver, including their personal details, driving history, and license information. The insurance company will then review this information, update your policy, and provide you with the new premium price.

It is important to note that the cost of adding an additional insured driver can vary depending on the insurance company and your specific circumstances. While some companies may charge a small administration fee, others may not charge any additional fees. Therefore, it is recommended to consult with your insurance provider to understand the exact costs and requirements for adding an additional insured driver to your auto policy.

Examples of additional insured

An additional insured is someone who has partial ownership of an auto or is liable for an auto that is insured by another party. They are often co-owners on the title or leaseholders, or they're driving vehicles that are owned by someone else.

• A landlord in a commercial building will often require that a tenant has the landlord named as an additional insured on the tenant's insurance policies.
• A general contractor might require subcontractors to name the general and the owner on the subcontractor's policies. For example, a general contractor might contract out work to plumbers, electricians, and engineers. These workers are providing a service to the general contractor as third parties. As a result, the contracted third parties could sue or file a claim against the general contractor if they get hurt on the job.
• Manufacturers may wish to cover the sellers of their products as additional insured under the manufacturer's liability policies. This coverage helps provide motivation to the sellers to promote the sale of the products because the seller knows that any product liability lawsuit against the seller will be covered by the manufacturer's liability insurance.
• A grandparent who co-signed on a car loan for you and doesn't live in your household. They don't have to be listed as a driver. They live out of the household and probably have their own car insurance policy.
• A lienholder or lending company for financed vehicles.

Additional insured coverage via omnibus clause

An omnibus clause is a provision that is often included in an auto insurance policy to ensure that an automobile is covered regardless of who is driving. It is a standard feature of automobile liability insurance policies.

The clause extends coverage to individuals who are not specifically named in the policy but have permission to drive the insured vehicle. This permission can be granted by the named insured or by a first permittee, who is an individual given permission by the policyholder to use the vehicle. The first permittee can then allow a second permittee to drive the car. For example, a parent may give their child (the first permittee) permission to use the family car, and the child may then allow a friend (the second permittee) to drive the vehicle.

The extent of the omnibus clause's coverage depends on legal interpretations of how authority is granted. In some cases, courts may require that the policyholder explicitly provide permission to each party. If the policyholder expressly prohibits the first permittee from allowing anyone else to use the vehicle, coverage may be denied to the second permittee. However, some courts have ruled that granting unrestricted use of a vehicle indicates that the first permittee can give permission to other people.

The omnibus clause also covers vicariously liable parties, meaning those who could be held legally liable for the actions of the named insured or a permissive user. For example, an employer may be vicariously liable for a car accident caused by a negligent employee.

Frequently asked questions