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Naming Your Client as an Additional Insured
- and other contractual conditions
It is common for client contracts to contain insurance provisions. Typically, these provisions will require you to maintain certain types of insurance (professional liability, general liability, workers compensation, etc.), and minimum limits of liability for each. In addition, the contract may go on to outline specific conditions often including that the client be named as an additional named insured on your insurance policies. Unfortunately, contracts will sometimes apply these conditions on a blanket basis without regards for the individual nuances of each insurance product.
For instance, 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.
There are two specific reasons why clients are not named as an additional insured on a professional liability policy:
1. If your client is named as an additional insured, it would likely eliminate coverage under your policy for any suits by your client against you. Professional liability policies commonly have an exclusion prohibiting an insured filing a suit against another insured to recover damages. If your client was named as an additional insured, they would be considered an "insured" by definition and any claim they made against you could be excluded under the policy.
2. In addition, unlike other types of insurance, your 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.
For these reasons, your professional liability carrier will usually not (nor is it in either party's best interest to) endorse your policy to include a client as an additional named insured.
In some instances, 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. In all cases, full details including contracts, and/or statements of work, are required to explain to the underwriter the circumstances for consideration.
Other contractual provisions you should review include;
Requiring high limits of liability
Again, sometimes your client will hand you a "boilerplate" contract that requires you to carry a very high limit of liability. A prudent underwriter will be reluctant to provide you with a limit of liability that is not inline with your true exposure (consider if you requested to insure your $20,000 car for $50,000). Discuss this limit with your NAPLIA representative to see if it is in line with industry standards. In most cases, we see clients being flexible when you go back to discuss these terms.
Requiring coverage for contractual risks
Your professional liability policy will generally exclude exposure that you take on contractually that you would under normal practices not be liable for. Be aware of contractual liability contract provisions and again, be proactive in discussing these with a client.
Another form of contractual liability may be a broad indemnity provision that goes beyond the coverage of your professional liability policy. Read contract provisions to ensure that you are not indemnifying clients, or contractors from their professional negligence, or that you are not vicariously taking on the coverage of sub-contractors not within your control.
Waiver of right of subrogation
Some contracts will require that your insurance carrier waive their right of subrogation. Subrogation is the insurer's right to pursue wrongful parties for reimbursement of payments made under the insurance policy. It is typically only considered in blatant areas of wrong doing. Carriers typically will not consider waiving this right, and again, typically, not applicable in a client-vendor professional liability scenario.
What should you do?
Should you have a client that requires you to name them as an additional insured on your professional liability policy, or other condition you feel is not applicable, this may be a carry-over from their standard contract wording.
1. Read the entire Contract and conditions.
2. Contact your NAPLIA representative and discuss the insurance provisions in the contract.
3. Go back to your client with an educated recommendation on amendments that would be in line with industry standards and the conditions of your professional liability policy
This approach will ultimately provide a better service to you and your client.