The topic of additional insureds is a complicated topic for a business. You need to be clear about when and why you need this endorsement on your policy.
What Is Additional Insureds?
An additional insureds endorsement protects you when you work with other businesses to perform work for a mutual client. The other business might be a sub-contractor or a vendor, or simply another company on the job site.
Actually, coverage and requirements vary from state to state so you always need to check local regulations with you insurance agent. But basically, one company adds the other business as an additional insured to their commercial liability business insurance policy.
When you add the other business, you protect yourself if they are guilty of negligence. When you have the other company add you to their policy, they are protecting themselves from your negligence.
#1. You cause an accident.
Assume you run a sidewalk installation company. Fine and Dandy Corporation has the major contract for a new subdivision of homes. You are the subcontractor who will install the sidewalks all through the area.
According to the contract you sign, you add Fine and Dandy as an additional insured to your insurance coverage. Fine and Dandy adds you as an additional insured to their policy.
A pedestrian falls over cement on one of your sidewalks. This is always bad news, but at least you’re covered. The injured pedestrian sues you and also sues Fine and Dandy. Because you added Fine and Dandy as an additional insured to your policy, they are covered in this litigation.
#2. Your subcontractor causes an accident.
It’s the same project. Assume you are so busy, you need to subcontract some of the work to OK and Adequate Corp. Your contract with them requires that they add you as an additional insured to their policy. Likewise, you add them as an additional insured to your policy.
The same clumsy pedestrian falls over cement again. This time OK and Adequate Corp. caused the problem. You are covered.
#3. Clumsy pedestrian sues all three of you.
The pedestrian has had it with the holes and the mess. He’s sore and he’s mad. He sues Fine and Dandy, he sues you, he sues OK and Adequate Corp. All three of you are covered because all three have mutual additional insured endorsements.
Be safe on the work site. Make sure you aren’t at risk because of the problems caused by another contractor. Check with your small business insurance agency to find out when it is appropriate to use an additional insureds endorsement.