How to Handle Additional Insured Demands
Legal expert Ken Kirschenbaum dives into the many issues that may arise if you name a subscriber as an additional insured on your insurance policy.
The additional insured provision is one of the more potent provisions used to allocate and shift liability. The traditional response to a subscriber request to be named as an additional insured has historically, at least in the alarm industry, been to reject the demand. Alarm companies do not offer to cover their subscribers on the alarm company’s insurance policy.
Before discussing this policy in more detail, let’s first take a moment to understand what naming your subscriber as an additional insured means and the consequences, because there are many issues.
The first issue to arise is when you agree to name an additional insured and you don’t. That’s a breach of contract, and more than likely a noncurable breach, entitling the subscriber to terminate the contract and stop paying you. Failing to obtain the insurance is also likely to expose you to the liability that the policy might have covered. In other words, you just became the insurance company.
You need to be careful what additional insured coverage you are being asked to provide. When we think of additional insured we believe it means that your additional insured, the subscriber, and whoever else you have named as additional insured, will be covered by your insurance policy to the extent that you are liable for the loss and covered by your insurance.
In other words, the additional insureds do not have any more coverage or rights than you do as the primary insured.
However, it doesn’t always work out this way because of how the demand for additional insured is written. The demand for additional insured coverage might require your policy to be primary and noncontributory; it might demand that your policy be first in line to cover a loss on the property even if you aren’t the cause of the loss and did nothing wrong.
In this case your policy becomes the primary insurance for the subscriber no matter who is to blame. This kind of coverage would not be typical, but it’s something you, your insurance broker and carrier should be careful to avoid if not reject out of hand.
Keep in mind that you may want to name your subscriber and others as additional insured on your policy even if there is no request to name them as such. In fact, you should name any party as an additional insured if you have agreed to indemnify them. Your insurance needs to back up your indemnity, and you should seek to limit your indemnity to your insurance coverage.
Demand for additional insured status and for indemnity is becoming more common. Naturally alarm companies don’t want to lose business, but on the other hand they also don’t want to risk their entire company on a loss or risk loss of insurance coverage or increased premiums. There needs to be a balance.
Recent negotiations have led me to consider when you should depart from the historical position of “no indemnity” and “no additional insured.” I’ve counseled clients that if the scope of the job is installation only then they can agree to the indemnity and additional insured requirement.
Though they still have to get approval from their insurance broker, who may or may not have the authority to approve additional insureds without consulting with the carrier.
Post-installation services of any kind (e.g. monitoring, repair service, inspection) have much different exposure and you should not sign any general contractor or owner or subscriber form agreement, and you should not provide any indemnity or additional insured coverage. Use your own form agreement (alarmcontracts.com) that requires the subscriber to indemnity you and name you as an additional insured on its policy.
If you have a subscriber who insists on indemnity and additional insured status for RMR services (post-install services) I suggest you counter with an offer to obtain a separate policy for you and the subscriber. Limit your indemnity to that policy and require the subscriber to pay your cost of the policy. Contract negotiations that involve legal issues, as opposed to business issues, should be handled by lawyers, not by you.
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