Additional Insured: Protecting Clients And Professional Services

Clients may request to be included as additional insureds on a professional services policy before signing a contract. This can provide them with more liability coverage and make the policy owner liable for certain claims and lawsuits filed against them by third parties. However, there are limitations to additional insured coverage, and an insurance company may refuse to add a client as an additional insured to a professional liability policy, arguing that the client is not a licensed professional and therefore cannot be held to the same standard of care.

Clients believe they are better protected as additional insured

Clients may ask to be included as additional insureds on a professional services provider's insurance policy before signing a contract. This is because clients often believe that they are better protected as additional insured. Being added as an additional insured to a professional liability policy can make the policy owner liable for certain claims filed against them by third parties. This includes claims of bodily injuries, property damage, and advertising injuries (e.g. libel, slander, or copyright infringement).

For example, a client may request to be added as an additional insured on a business's E&O insurance policy. This would make the business liable for certain claims and lawsuits filed against the client. It is important to note that some insurers may limit the types of businesses that can add an additional insured to a professional liability policy. Additionally, an insurance company may refuse to add a business's client as an additional insured to a professional liability policy, arguing that the client is not a licensed professional and therefore cannot be held to the same standard of care.

However, there are ways to accomplish adding an additional insured to a policy. This can be done through a blanket endorsement or a scheduled endorsement. While adding an additional insured can provide protection, it is important to remember that the coverage may only apply to a limited type of liability. For example, it may only cover vicarious liability.

By being named as an additional insured on a professional services provider's policy, clients can gain peace of mind and additional protection in the event of claims or lawsuits. It is important for clients to understand the specific terms and conditions of the insurance policy to ensure they are fully aware of the coverage provided.

Firms can refuse to add clients as additional insured

Design firms may receive requests from clients to be listed as an additional insured on their Professional Liability (PL) policy. However, design firms can refuse to add clients as additional insureds for several valid reasons. Firstly, PL policies are intended to cover losses suffered by others, such as clients, contractors, and third parties, due to the negligent acts, errors, or omissions of the named insured (the design firm). The PL policy does not provide coverage for losses suffered by the design professional themselves, i.e., the named insured. Therefore, adding a client as an additional insured may not provide any additional protection for the client and could, in fact, weaken their protection against losses.

Secondly, if a design firm's PL insurer covers the additional insured's legal expenses or pays out for a judgment against the client, it could erode the design firm's policy limits. This means that the design firm's coverage could be reduced, leaving them more vulnerable in the event of a claim. Additionally, if the client has licensed design professionals on staff and is listed as an additional insured on the PL policy, the design firm could be held liable for the actions of these staffers. In such cases, the design firm's PL insurer and the client's PL insurer may both refuse coverage for any claim, resulting in a complicated situation where insurers point to each other as being responsible for providing coverage.

Moreover, adding a client as an additional insured on a PL policy can be complex and may require a separate contract specifically agreeing to add them as an additional insured. The Gilbane case in New York set a precedent that a party is not entitled to coverage as an additional insured without a written contract with the policyholder requiring such status. This ruling has significant implications for anyone seeking coverage as an additional insured in New York and has caused the industry to reconsider standard practices. Design firms should be aware of these legal considerations and the potential complexities involved in adding a client as an additional insured.

Lastly, it is important to note that, historically, PL insurers have been reluctant to endorse adding clients as additional insureds. Firms should explain to their clients that the vast majority of insurers would refuse such a request and that it is not an obligation for them to provide PL coverage to their clients or any design professionals on their staff. By providing a clear and transparent explanation, design firms can ensure that their clients understand the reasons behind the refusal and work together to explore alternative risk management strategies or insurance options that may better suit their needs.

Additional insured status can be a prerequisite for contract signing

Despite this common misconception, it is more typical to have an additional insured on a Commercial General Liability policy for Design Professionals. This can be achieved through a blanket endorsement or a scheduled endorsement. A blanket endorsement grants additional insured status to any company as required in a written contract with the named insured. This obligation often originates in the prime contract, where the owner requires additional insured status on the general contractor's insurance.

The general contractor then attempts to pass this obligation downstream to its subcontractor by including a requirement in the subcontract that both the general contractor and owner be named as additional insureds. This can lead to complexities, as seen in the case of A.F. Lusi Constr., Inc. v. Peerless Ins. Co., where the court dismissed the suit, finding that no additional insured coverage was provided, despite the automatic additional insured wording, due to a lack of clarity in the subcontract agreement.

To avoid such issues, it is essential to have a written contract or agreement in place that clearly outlines the additional insured status. This contract or agreement must be executed prior to any loss occurring. While the interpretation of "executed" may vary, some courts have held that it refers specifically to a "`written, signed agreement." Therefore, it is crucial to carefully consider the relevant precedent and consult with legal professionals when establishing additional insured status as a prerequisite for contract signing.

Additional insured status can provide broader liability coverage

Liability insurance policies provide coverage for the costs of monetary payments or payouts that the insured party might be responsible for if they are found to be legally liable. By adding an additional insured, this coverage is extended beyond the named insured to include other individuals or groups that were not named in the original policy. This is particularly relevant in the case of professional liability policies, which protect businesses from lawsuits claiming mistakes in the professional services given.

For example, a general contractor might require subcontractors to name them as an additional insured on their policies. This means that if the subcontractor is sued due to accidents arising out of their work, the general contractor will be protected by the subcontractor's insurance. Similarly, manufacturers may wish to cover the sellers of their products as additional insureds under their manufacturer's liability policies, providing motivation for the sellers to promote the sale of the products.

However, it is important to note that additional insured status does not provide the same coverage and protection as the named insured. The nature of the coverage depends on the endorsement used to provide it, and it may be limited in certain ways. For example, some endorsements only provide coverage for the additional insured with respect to their liability for the named insured's activities or activities performed on their behalf.

Additional insured status can make the policy owner liable for third-party claims

When a client requests to be listed as an additional insured on a professional liability policy, it means they are seeking to extend your insurance coverage to them. This extension of coverage can provide protection for your client against third-party claims arising from your professional services. However, it's important to note that granting additional insured status can also expose the policy owner to additional liability risks.

By adding a client as an additional insured, the policy owner takes on the risk of third-party claims associated with the client's operations or conduct connected to the policy owner's business. This means that if the additional insured is sued, the policy owner's insurance may be responsible for covering the resulting costs and payouts. For example, consider a scenario where a business hires a contractor, and an accident occurs, leading to a lawsuit. If the business is listed as an additional insured on the contractor's policy, they can make a claim and seek coverage under the contractor's insurance, shifting the liability to the contractor's policy.

The impact of additional insured status on liability is particularly relevant in the context of professional services. In certain situations, clients may believe that being included as an additional insured provides them with enhanced protection. However, it's important to clarify that professional liability policies typically make payments on behalf of the named insured (the firm) rather than directly to the firm itself. This distinction is crucial because it means that any claims or lawsuits against the firm would be paid by the insurance company to the claimant, not to the firm directly.

While additional insured status can provide coverage for certain third-party lawsuits, it's important to be aware of its limitations. Additional insured coverage typically applies to specific types of liability, such as vicarious liability, and may not cover all potential risks. Furthermore, insurance companies usually restrict the addition of a client as an additional insured on a professional liability policy. This restriction exists because the client is not directly performing professional services and, therefore, does not face the same level of risk as the design professional. Instead, it is more common to add additional insureds to a Commercial General Liability policy, which can be done through a blanket endorsement or a scheduled endorsement.

In conclusion, while granting additional insured status to a client can provide them with protection against third-party claims, it also extends the policy owner's liability. This extension of liability means that the policy owner may become responsible for claims and lawsuits filed against the additional insured. Therefore, it is essential to carefully consider the potential risks and consult with insurance professionals before adding any entity as an additional insured to a professional liability policy.

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