Exclusively from Foa & Son
Take a look at the main declarations page of any of your insurance policies. In most the first thing you’ll see, at the top of the page, is the name of the insurance company; right after that is the named insured.
These are the single most important parts of the insurance contract, and remember, an insurance policy is a contract. Like any contract, the first thing always defined is who are the parties to the contract. If an individual or entity is not listed specifically in the insurance policy declarations, an endorsement, or within an omnibus clause, then it is not party to the insurance contract and has no coverage in the policy. For this reason it’s critically important that all entities or individuals that are intended to be covered under the policy be named correctly.
To do that it’s important to first understand the types of insureds in a policy. There are four basic types of “insured’s” in most policies. The primary policyholder, named on the front page, is the “Named Insured”, the primary party in the contract with the insurance company. The named insured (also called the “first named insured” and often referred to throughout the policy as “you” and “your”) is the owner of the insurance policy and has all the rights and obligations that go with it. The first named insured receives the original policy, is responsible for paying premiums, can submit and be paid for claims, has the right to cancel the policy or alter or change it (with the insurance company’s consent, of course) and receives any notices, including notice of cancellation or non-renewal.
In addition to the Named Insured most policies will also have a section called “who is insured” or something similar. That section defines who would be considered an “automatic insured”, or who, in addition to the first named insured, is automatically covered under the policy. Here are just some examples of who might be listed as an “automatic insured” on many policies:
• The spouse of an Individual Named Insured
• Partners and Joint Ventures in a Named Insured Partnership or Joint Venture.
• Members and managers of a Named Insured limited liability company.
• Officers, directors, and stockholders of a Named Insured corporation or other Named Insured organizations.
• Trustees of a Named Insured Trust
Beyond the named insured and automatic insureds as defined in each policy there are often other persons, entities and organizations that you’ll want to be sure are covered by the policy. These usually include entities and operations closely related to the first named insured such as subsidiary corporations, real estate holding companies, partnerships, trusts and retirement plans among others. To cover these properly the first named insured will want to add them to the policy as “additional named insureds”. When they are added to the policy this way the first named insured is extending all the coverage and limits in the policy to such additional named insureds. Additional named insureds have an ownership interest in the policy and have many, but not all, of the rights and responsibilities of the first named insured. By way of example, they are typically not responsible for paying premiums; they can’t change or alter the policy (only the first named insured can do that); and they probably won’t receive any notices of policy changes or non-renewal. All of these are reserved for the named insured only.
Besides additional named insureds there is also a fourth type of insured party, the “additional insured”. Additional insureds are typically outside, unrelated entities or persons with business dealings with the named insured, and for whom the named insured elects (or is required) to extend some of the protection in the policy. Examples might include the volunteers for a social service organization, for whom the organization might want to extend the protection of their policy (if not already covered as automatic insureds as they might be in some policies), landlords, or contractors with business relationships or doing work for the insured. Additional insureds have no ownership interest in the policy and even fewer rights than additional named insureds. Most particularly, under most endorsements that add additional insureds to policies the additional insured specifically does not have any right to receive notice of cancellation, non-renewal or material change in the policy. This last can be a vexing problem because many attorneys and others who draft contracts or agreements still commonly insert language requiring that the additional insured be notified of policy changes. With most current standard and even non-standard policy forms, this will not happen.
First named insured, automatic insured, additional named insured, additional insured…understanding the different types of insureds on a policy is the first step; figuring out the different ways to add others to your policy is the next. Automatic insureds are, by definition, automatically included. Additional named insureds must normally be specifically named and listed on the policy with their correct legal name. The endorsement that does this will usually be one of the first ones found after the policy declarations, and will be called the schedule of additional named insureds, or something similar. If you have subsidiaries or related entities you want to have covered by your policy, it’s important to be sure they are specifically, and correctly, listed here.
Additional insureds can also be specifically scheduled as well, with any one of many different endorsements because of their different status. They (or some) might also each be specifically added with an endorsement specific to them.
Beyond that, other choices exist. Sometimes its worth using an omnibus clause or endorsement to cover other entities. An omnibus clause is a provision in policies that embraces within the definition of “insured” certain persons or entities without the necessity of naming them or designating them specifically. These clauses can take different forms. The social services organization mentioned earlier might extend coverage to volunteers by amending the definition of who is an automatic insured to cover volunteers. Other additional insureds might be covered under a blanket additional insured endorsement, which might describe the types of entities or relationships that would qualify for automatic additional insured status, and under what conditions.
Omnibus clauses can be standard or non standard forms, so they all need to be scrutinized, but either way they are not a cure-all. For example, many standard automatic or blanket additional insured endorsements will automatically add an entity to your policy as an additional insured if you are party to an agreement that requires that, but they commonly specify that there must be a written agreement with such a requirement for the endorsement (and coverage) to attach. Suppose there is no written agreement, or imagine the other party is a subcontractor, with an agreement with the contractor but not with you? In that case, there is no automatic coverage.
Keep in mind that, except for the first named insured, provisions dealing with who else might be covered on your policy can and do differ from policy to policy and insurance company to insurance company. There is typically little or no cost for these types of endorsements, and they do have value, but you need to understand their limitations. This is a part of your policy that should always be examined and customized to be sure coverage properly attaches for those you want (or need to have) covered. As with many things having to do with insurance contracts, the devil is in the details.
The bottom line is nothing will result in a quicker denial of coverage by an insurance company than when an entity submitting a claim or seeking coverage is not properly listed as a insured by some means or another on a policy. Such situations are entirely avoidable and rarely add any cost to your premiums to fix. If you have not looked at this recently give us a call so we can review this with you and make sure you are properly protected.