Business Strategies for Surveyors

Managing Risk with Additional Insured Policies

February 1, 2014
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If you provide professional services to others, then you have more likely been requested on one or more occasions to list your client as an “Additional Insured” on certain insurance policies that you maintain. This is a commonly accepted risk management strategy that is designed to shift the responsibility to indemnify for a loss to the party who is legally responsible a nd hopefully be defended by that party’s insurance company. Unfortunately, the request for being considered an “Additional Insured” cannot always be accommodated; so it is important to understand when this risk transfer term can be effectively used.

The idea of being included as an Additional Insured on the insurance policy of someone else is an effective risk management strategy and, in many cases, it is recommended. If we consider the professional services offered by a land surveyor, architect or engineer as the “professional” in this article, it is quite common, for example, to find that a client will request that it be included as an Additional Insured on the Commercial General Liability and or the Commercial Automobile Liability insurance policies of the professional, particularly, when that professional is performing a service for that client.

If the professional is found legally liable for bodily injury or property damage it caused to a third party, then the client could also be named in a lawsuit because it hired the professional and has become vicariously liable for the services rendered by the professional. Even though the client may not have caused or contributed to the incident that gave rise to the lawsuit or complaint, it will naturally want to be protected and will look to the insurance maintained by the professional as a potential source for defense coverages and indemnity that would be offered to an Additional Insured. In this way, the client will not have to rely on its own insurance policy and incur loss experience, which could potentially affect the future cost of insurance. For example, the following language could be presented to the professional by the “client” whereby the professional is considered the “consultant”:

 

The Consultant agrees to obtain and maintain at all times while services are being performed under this Agreement the following insurance:

Commercial General Liability insurance covering premises / operations and completed operations on an occurrence form in the amount of $1,000,000 combined single limit for each occurrence and $2,000,000 in the aggregate. The Client shall be named as an “additional insured.”

Professional Liability insurance for damages incurred by reason of any negligent act, error, or omission which is committed or alleged to have been committed by the Consultant in the amount of $1,000,000 per claim and in the aggregate.

The same principles hold true for professionals who may engage the service of a sub-consultant. It would be wise to request that the professional be listed as an Additional Insured on the Commercial General Liability and/or Commercial Automobile Liability insurance policies of the sub-consultant; thus, the professional does not have to rely on its own policy for defense coverage, particularly if the professional is also named in a lawsuit for damages to a third party that were caused by the sub-consultant. The theory holds that the party who caused the bodily injury or property damage should pay for the claim and arrange to defend others, as appropriate, who might be brought into the lawsuit. Finally, it would be wise to ask for a copy of the endorsement, which will provide your company as an Additional Insured so that you can share it with your agent or broker and be counseled accordingly on the terms and conditions that will apply to you as an Additional Insured.

When it comes to the professional liability insurance policy, this is where a request for being included as an Additional Insured goes beyond what can be accommodated. It is interesting to see how many clients think they can be better protected by being included as an Additional Insured on a professional liability insurance policy. But unfortunately, they do not seem to understand the language in this type of policy or its purpose. And any request to be added as an Additional Insured on the professional liability insurance of the professional will typically not be accommodated.  For example, consider the following example of an insurance requirement that cannot be accommodated:

 

The Consultant agrees to obtain and maintain at all times while services are being performed under this Agreement the following insurance:

Professional Liability insurance for damages incurred by reason of any negligent act, error, or omission which is committed or alleged to have been committed by the Consultant in the amount of $1,000,000 per claim and in the aggregate. The Client shall be named as an additional insured.

At the heart of a professional liability insurance policy is an insuring agreement that contains language designed to pay on behalf of the “Named Insured” damages and expenses it becomes legally obligated to pay because of claims alleging negligence, errors or omissions in the performance of its professional services. It makes no sense for a client to be included as an Additional Insured on a professional liability insurance policy when the client was not performing any professional services and did not assume any risk for which the policy is designed to cover.

Also, if a client was included as an Additional Insured, then there is a clause within professional liability insurance policies that precludes one insured from filing a claim against another insured. In this instance, the client would potentially compromise its ability to file a claim against the professional who is insured. Finally, it should be noted that the policy is worded in such a way that the insurance company will “pay on behalf of” the named insured; not “pay to” the named insured. If a client was listed as an Additional Insured, then it would not be able to file a claim against itself and collect for damages.

If by some strange reason, an insurance company agreed to add a client as an Additional Insured to the professional liability insurance policy of the professional and the client had a staff of licensed or registered professionals, then new potential issues are created. If a claim is made for negligence against the client’s staff of licensed or registered professionals, whether they are involved with the work of the professional or not, then the professional liability insurance policy could be potentially called upon to defend the client’s staff and, even possibly, to provide indemnity for a loss.

By allowing such a client to be listed as an Additional Insured on a professional liability insurance policy, the policy could be providing coverage when there is no control over what the client is doing. And, the professional has allowed for the limits of liability to the policy to be potentially used up, leaving the professional with less protection. So, if the client should ask to be listed as an Additional Insured on the professional liability insurance policy, then it is best to refer them to an agent or broker who can provide them with appropriate counseling.

As this article hopefully provides, the Additional Insured status can be a useful risk management strategy in some cases. But it can also cause problems. By being better informed and including an agent or broker in any request for including someone as an Additional Insured, surveyors hopefully can accommodate the request in situations that make good business sense and help manage risk.

This article is being provided for informational and educational purposes.  The views contained in this article are those of the author, and are not intended as legal advice nor should it be construed in any way as a legal opinion or whether insurance will apply for any specific claim.

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