Understanding the Role of Additional Insureds in Commercial Insurance

In today's risk-conscious world, the term "additional insured" comes up frequently in commercial contracts, whether you're working with contractors, healthcare providers, landlords, or distributors. From a retail agent's perspective, it's not just about meeting contractual obligations. It's about ensuring your insureds understand what they're agreeing to, and whether their policy can actually deliver the protection they're promising to others. 

At Novatae, we regularly help retail agents place policies where additional insured endorsements are either requested or required. But what does it really mean to name another party as an additional insured? And what considerations should retailers and their clients keep in mind before agreeing to these provisions?

What Does "Additional Insured" Mean?

An additional insured is a person or organization added to another party's liability insurance policy. While not the original policyholder, they receive some level of coverage under the same policy, usually in connection with the named insured's operations or actions.

Common examples include:

• A general contractor asking to be named on a subcontractor's liability policy.
• A landlord requiring a tenant to include them on the tenant's insurance.
• A hospital requesting to be listed on a medical staffing company's coverage.

In all these cases, the additional insured isn't covered for everything. They're protected only for liability that arises out of the named insured's work, operations, or activities performed on their behalf. For instance, coverage may extend to a property owner for claims tied to a tenant's operations, but not for the owner's independent negligence or maintenance issues. Similarly, a general contractor may be protected for liability caused by a subcontractor's work, but not for unrelated site conditions or project management decisions. 

Why Are Additional Insureds Requested?

From a contractual standpoint, being listed as an additional insured shifts some of the liability risk to the named insured's policy. This means if something goes wrong, the additional insured can potentially tap into the named insured's policy rather than relying on their own. 

This arrangement is often about risk management. By requiring additional insured status, the party hiring or leasing, like a landlord, general contractor, or hospital system, makes sure they're protected if they get pulled into a lawsuit because of the other party's work. Over time, this has become standard practice in many industries. 

Key Issues to Watch For

As a wholesale broker, we see many retail agents get tripped up by the assumptions their clients make when adding an additional insured. It's critical to keep a few things in mind:

1. Coverage Limits Apply to Everyone

When another party is added as an additional insured, they're sharing in the same limits as your client. That means if a claim hits and the policy is used to defend both parties, the policy limits could be depleted more quickly. 

2. Claims Must Be Connected to Your Client's Work

An additional insured endorsement does not automatically make the other party fully covered for all of its own operations. AI protection generally extends for liability that arises out of the named insured's work, operations, or activities performed on the additional insured's behalf, but the exact scope depends on the endorsement language and edition. 

Notably, standard ISO AI forms (for example, CG 20 10 and CG 20 37) changed over time. The 10/01 editions of those forms lack an explicit causation phrase requiring that the named insured's conduct have caused the loss "in whole or in part," which created ambiguity and, in some cases, broader insurer exposure. The 07/04 editions corrected that gap by clarifying the trigger language, i.e., coverage applies only to liability that is caused, in whole or in part, by the named insured's acts or omissions. 

Because of these differences, you must review the specific endorsement form and edition on the policy to determine whether an AI is limited to liability actually caused (in whole or in part) by the named insured, or whether the older wording could be interpreted more broadly. In short, the concept (AI covers liability tied to the named insured's operations) is correct, but the form edition determines how strictly that concept is applied. 

3. Endorsement Language Matters

Not all additional insured endorsements are created equal. Some are project-specific, others are blanket endorsements triggered only when required by contract. Some provide ongoing operations coverage, while others include completed operations as well. These nuances can have a major impact on claims outcomes. 

This is where wholesale expertise can make a difference. At Novatae, we help retail partners understand what their carriers can and can't offer in terms of endorsement language, so you can guide your clients appropriately. 

Primary and Noncontributory Requests

It's common to see contracts that not only request additional insured status but also include language requiring "primary and noncontributory" treatment. 

In practice, this means the named insured's policy will respond to a covered claim on a primary basis and will not seek contribution from any other insurance available to the additional insured. This arrangement favors the additional insured, ensuring their own policy limits remain untouched unless the named insured's limits are exhausted. However, it can also shift the financial burden of claims more heavily onto your client. 

Not all carriers are willing or able to extend primary and noncontributory provisions. Retail agents should consult their wholesale partner before confirming that such a requirement can be satisfied under the available coverage terms. 

Waiver of Subrogation

Another common contractual requirement, often paired with additional insured status, is a waiver of subrogation. This clause prevents your client's insurer from seeking reimbursement from the other party after paying a covered claim, even if that party's actions contributed to the loss. 

While this can be necessary to secure a contract, it also means your client could absorb a loss that wasn't entirely their fault. Again, knowing what your client's carrier will allow and what that could mean for loss ratios and renewal pricing is critical. 

Additional Insured and Loss History

One often-overlooked consequence of additional insured endorsements is the potential impact on loss experience. Even if a claim originates from another party's request, once it's paid under your client's policy, it becomes part of their claims history. 

This can lead to higher premiums or even limit future insurability. Before a client agrees to a broad range of additional insured requests, especially from multiple partners, help them understand the long-term risk. 

When Does it Make Sense?

There's nothing inherently wrong with adding an additional insured. In many industries, it's expected. But the request should be evaluated on a case-by-case basis. Is the relationship critical to your client's business? Is the request contractually required? Can the carrier accommodate it without requiring costly custom endorsements?

Wholesale brokers like Novatae play a valuable role in helping agents answer these questions. We can compare carrier forms, clarify what's standard vs. negotiable, and help retail partners offer smart recommendations that protect their clients. 

Final Thoughts

Additional insured endorsements are common, but they're not simple. They create potential coverage, claims, and cost implications that retail agents and their clients should understand before signing on. 

Novatae works with a broad range of carriers and has deep experience handling complex contractual coverage scenarios. If your client is facing an additional insured request and you're unsure how to meet it or whether it's in their best interest, reach out to our team. 

We're here to help you place the right coverage with the right language. 

This article is not intended to be exhaustive, nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.