Additional insured status for professional liability, why or why not?
By Ken Kukral
It is quite common for contracts to have insurance provisions. Those provisions may require the party signing the contract to have general liability, professional liability, workmen’s compensation or pollution liability. Included in those provisions may be a request for named insured or additional insured status so as to indemnify them in the event of a loss. The client may assume that being included as a named insured, or additional insured, provides them further protection should a claim arise relevant to your relationship. This may be true for some forms of insurance, but it can be exactly the opposite for a professional liability policy.
So should you name the other party on your insured’s professional liability policy? In most cases the answer is no. The reasons are:
1. The client does not have the exposure that the policy would cover. Take for example if one of your insurance clients asked to be named as an additional insured under your insurance agents and brokers professional liability insurance policy. Covered services would be for acts as insurance agent or broker. Since your client is not acting as an insurance agent or broker they would not have any coverage since the professional liability is limited to “covered services as defined in the policy”. Since they are not acting as an agent they would not be afforded coverage.
2. Most professional liability policies have an “insured versus insured” exclusion. An additional insured would also be an insured so they could not collect from another insured.
3. Professional Liability policy does not make indemnification to the insured (you). Instead, the Professional Liability policy pays on behalf of the insured in the event that insured’s negligence, in rendering professional services, results in damages. Your client, is not the one rendering professional services, and therefore, does not assume the risks that your professional liability policy is designed to cover.
4. Conflict of interest. If the certificate holder names the insured in a suit, both the certificate holder (additional insured) and the insured could not be represented by the same law firm. Hence the reason for the insured versus insured exclusion (#2 above)
Are their exceptions? Yes. Those may be:
- A carrier may attach a “vicarious liability” endorsement that includes your client as a named insured, but only for vicarious liability resulting from services provided by you.
- Your client may have the “exposure” An example might be where an engineering firm was working with the County Engineer on the design of the water and sewer system for a new development. In that case the client DOES have an engineering professional exposure and they might want to be an additional insured under the independent engineering firms professional liability.
So what should you do when your client comes to you with a request to add an additional insured to their professional liability policy?
A. First, bring full details including contracts, and/or statements of work, in order to explain to the underwriter the circumstances for consideration.
B. Get involved. Help negotiate this provision out of the contract. Explain the issues this causes, how it negatively affects coverage and why this doesn’t protect them any better if they have this endorsement. Getting to the bottom of “why” they want this endorsement will help you to show that their request does not actually do that.
C. Look at other solutions to the resolve the problem posed to you by the certificate holder. Additional insured endorsements to not resolve all situations. For architects and engineers a project policy may be a viable solution.
D. There are other circumstances when underwriters may provide AI endorsements on a case-by-case basis. Circumstances where there is a very clear vicarious liability exposure to third party because the additional insured is hiring the professional to do 100% of the professional work or the professional is doing the work in the name of the additional insured as in design build projects. In these circumstances, the additional insured is hiring the insured and the exposure to the additional insured is the work of the insured. Nevertheless, in these instances it is more likely that the additional insured will be sued for the actions of the insured. Most underwriters can be persuaded to extend additional insured protection to the additional insured in these rare circumstances. Make sure to amend the insured versus insured endorsement if the additional insured is granted.
Tread lightly when you get these requests. How you handle these type of situations, can weigh heavily with your client. They are more interested in getting a contract, starting a project or getting paid and telling them “no”, it can’t be done can drive a wedge between you and your client. Getting involved with the party requesting the AI or working with the insured’s legal counsel to negotiate this provision will help resolve this matter to a successful conclusion. Dig deep enough to determine if this is one of those rare situations where some sort of additional insured makes sense and can be negotiate to not negatively affect your clients coverage.