The labyrinthine lexicon of insurance terminology can often leave one feeling as if they're grappling with an enigmatic foreign language. For businesses seeking coverage to fulfill their contractual commitments, the seemingly synonymous terms "additional insured" and "designated insured" might be misleadingly similar, yet they possess nuanced connotations within the realm of a Business Auto Policy (BAP). These phrases assume an indispensable role in delineating the breadth of coverage bestowed upon the entities involved. Let's delve into the disparities to unravel the disparities between additional insured and designated insured endorsem*nts within the context of a BAP.
Additional Insured: Extending the Veil of Protection Beyond the Principal Policyholder
The concept of an additional insured stems from the desire to extend insurance coverage beyond the primary policyholder. In the context of the BAP, an additional insured is an entity or individual other than the policyholder who gains limited coverage under the policy. This often occurs when one party (the policyholder) is contractually obligated to make another party (the additional insured) for potential claims arising out of the policyholder's automobile related operations.
To illustrate, consider a scenario where a real estate owner engages a subcontractor to perform certain tasks that involve the use of vehicles. In this case, the building owner contractually requires to be included as an additional insured on the subcontractor's BAP. By doing so, the building owner ensures that they are covered in case of accidents or incidents caused by the subcontractor's vehicles during the project.
Designated Insured: An Illusion of Coverage
While an additional insured enjoys limited coverage under the primary policyholder's BAP policy, a Designated Insured merely presents the illusion of providing coverage. Upon closer inspection of ISO’s Designated Insured endorsem*nt (CA 2048), one discerns the following provision:
"Each person or organization indicated in the Schedule is an 'insured' for Liability Coverage, but solely to the extent that said person or organization qualifies as an 'insured' in accordance with the Who Is An Insured Provision contained in Section II of the Coverage Form."
In other words, one is deemed an additional insured solely if one already satisfies the definition of Who Is An Insured. This circular provision falls short of amending the policy. To further buttress the lack of coverage modification, the endorsem*nt iterates:
"This endorsem*nt does not amend the coverage provided in the Coverage Form."
This concise sentence encapsulates the essence of the endorsem*nt's insignificance. If it brings about no alteration, then why do insurers incorporate it into their policies? More critically, why do agents and brokers issue certificates signifying designated insured status when the contract expressly calls for additional insured status?
The distinction between additional insured and designated insured within the confines of a BAP is profound. Recognizing that additional insured status confers limited coverage upon third parties as stipulated in written agreements, while designated insured status offers no such protection, marks the difference between a satisfied policyholder and one contemplating legal recourse against your agency.
FAQs
Recognizing that additional insured status confers limited coverage upon third parties as stipulated in written agreements, while designated insured status offers no such protection, marks the difference between a satisfied policyholder and one contemplating legal recourse against your agency.
What is the difference between named insured and additionally insured? ›
A named insured is entitled to 100% of the benefits and coverage provided by the policy. An additional insured is someone who is not the owner of the policy but who, under certain circ*mstances, may be entitled to some of the benefits and a certain amount of coverage under the policy.
What are the risks of naming an additional insured? ›
There is also a risk of being under-insured or uninsured as additional insureds. Second, there is the risk of breaching a contract, thus potentially becoming the insurer of the other party when they are the party obligated to provide additional insured coverage.
What is the benefit of being named additional insured? ›
The purpose of additional insured endorsem*nts is to keep the burden of risk closest to those parties most likely to create losses, which typically is third parties contracted to perform the work.
Does it cost more to add an additional insured? ›
The cost of adding an additional insured is typically low, compared to the costs of the premium. Insurance company underwriting departments often consider the additional risk associated with additional insureds as marginal.
What is the difference between additional insured and designated insured? ›
While an additional insured enjoys limited coverage under the primary policyholder's BAP policy, a Designated Insured merely presents the illusion of providing coverage.
Can an additional named insured cancel a policy? ›
An additional insured has no ownership in the policy and no responsibility for paying premiums and they cannot make changes to the policy.
What are the limitations of additional insured? ›
There are some notable limitations to additional insured coverage, such as: The endorsem*nt may offer coverage for only a limited type of liability (e.g., vicarious liability). Additional insureds can't be added to a professional liability insurance policy.
Who should be listed as an additional insured? ›
The bottom line is if you are having anyone work on your property as a contractor, tenant, or as a vendor, they need to name you as an additional insured on their insurance policy AND you need to verify that on the COI they give you BEFORE they do any work whatsoever.
What is the alternative to additional insured? ›
Most commonly, an OCP policy is usually an alternative to adding the owner or contractor as an additional insured on the CGL policy of the general contractor or subcontractor.
Additional insured endorsem*nts can be added to auto policies; however, these endorsem*nts are not always commonplace or consistently procured.
Is an additional insured entitled to a copy of the policy? ›
The additional insured can either request a certified copy of the policy (with premiums redacted) or find out what the policy's notice requirements are. Sometimes the additional insured endorsem*nt will explain the duties with regard to providing notice of a claim, offense or suit.
What is the effect of additional insured? ›
Additional insured endorsem*nts can also impact the insured's loss history, which plays a role in determining premium. "Loss history" refers to the losses paid on the policy. Losses paid for an additional insured are considered part of the client's history, and a negative loss history can often cause premiums to rise.
What are the risks of naming additional insured? ›
If the client is added as a named insured, the insurer may deny any claim against the policy. Being a named insured may make the owner liable for claims filed by third parties. This increased exposure may lead to third-party claims that exhaust the policy limits – thus stripping away the client's protection.
What does "additional insured" on an auto policy mean? ›
An additional insured is a party that does not qualify as an insured under the standard GL . They must be added by an endorsem*nt that changes the “who is an insured” section of the policy. Additional insured endorsem*nts limit coverage to a specific relationship or set of circ*mstances.
Is it cheaper to add a car to an existing insurance policy? ›
Adding a new vehicle to an existing policy typically offers cost savings and simplicity compared to maintaining separate policies.
Is named insured the same as additional driver? ›
In the event of a loss, the named insurer is the person that the insurer writes the check to in the event of a loss. Additional drivers are a different matter. An additional driver is a person who resides with the named insured and/or regularly uses a shared vehicle.
Should a lender be named as additional insured? ›
While the SOP does not specifically outline the amount of general liability insurance required, most borrowers have $1,000,000 coverage for each occurrence and $2,000,000 in the aggregate. Lenders should be named as an additional insured on the general liability insurance policy.
What is the difference between additional insured and policyholder? ›
Additional insureds are third parties granted limited protection under the policy, extending coverage beyond the initial policyholder to safeguard against liabilities in specific circ*mstances.
Should a landlord be listed as an additional insured? ›
An additional insured is different from an additional interest. Your landlord shouldn't be listed on your renters insurance policy as an additional insured. Having an additional insured on your renters insurance means that you would be paying to cover them and their personal property too.
