Sometimes a contract calls for naming a party as an additional insured. On other occasions, it requests additional named insured status. So, what’s the difference and what are the advantages and disadvantages to the parties?

Any agency that deals with commercial lines is familiar with the daunting 
task of processing and explaining additional insured endorsements and 
certificates. Every now and then, though, a request comes in to name a 
party as an additional named insured. Just what is the difference between 
a “regular” additional insured status and that of an additional named insured?

In general, being a named insured gives that party greater rights under 
the policy. However, there are also downsides in that there are also 
greater responsibilities. Even more important, from the insured’s and the 
insurer’s perspective, additional named insured status is something to be 
avoided unless absolutely necessary.

Below, faculty member Charles Comiskey points out the general advantages 
and disadvantages of AI status, along with some compelling reasons why 
additional named insured status is usually not a good idea.

An additional named insured is essentially the same as the policyholder. 
Think of an additional named insured as a subsidiary or similar firm. 
There is much more than a contractual relationship (excepting some 
 management contracts). Under these circumstances, this status is probably 
 appropriate, but it rarely is under the circumstances in which agents are 
 too often asked to name a party as a named AI.
       
An additional insured is where two arms-length parties have agreed 
contractually that one party is to be added to the other’s insurance. That 
party usually cannot be added to a liability policy as an additional named 
insured. It should be noted that this does not apply to various property 
coverages, most notably builder’s risk. When such requests are received 
from arms-length parties, it most often occurs because the requestor 
doesn’t understand the signficance of named AI status.
       
There are numerous advantages and disadvantages of additional insured 
      status. 
       
Advantages include, but are not limited to:
       
      1.  To the degree that coverage is provided, there is no question of 
      enforceability as is so often the case with indemnification.
       
      2.  The additional insured has direct rights to defense from the named 
      insured’s insurance carrier, and must be provided a separate defense. 
      Defense of an additional insured is paid in addition to the limits of 
      liability.
       
      3.  The additional insured may, in fact, have broader coverage than the 
      named insured under certain circumstances. There may be restrictive 
      coverage conditions that would apply to a named insured (including an 
      additional named insured) that wouldn’t apply to the additional insured 
      since he/she is not a party to the contract.
       
      4.  The additional insured obtains personal injury coverage that is 
      usually excluded by a contractual assumption.
       
      5.  Depending upon the jurisdiction, the additional insured may be 
      provided coverage for its sole negligence if it has any causal 
      relationship with the named insured. ISO’s new AI endorsements seek to 
      restrict that as many states currently do by law.
       
      Disadvantages include, but are not limited to:
       
         1.  There are over 30 ISO additional insured forms. In addition to that, 
      there are a seemingly limitless number of company-specific additional 
      insured forms, blanket and/or manuscript forms. So just saying “additional 
      insured” means almost nothing.
       
      2.  The additional insured endorsement provides only a limited amount of 
      coverage. The endorsement must be read to determine how limited it is. 
      Many forms are becoming increasingly limited. At least one carrier has 
      changed their form three times in the past year. Any guess as to how many 
      of those changes were in the additional insured’s favor? And if 
      unfavorable for the additional insured, what does that do to the named 
      insured who may find himself/herself in breach of contract?
       
      3.  Unless requested otherwise, the additional insured does not extend to 
      officers, directors, employees, etc. of the additional insured. Contrast 
      that with additional named insured status where that could happen. Ask 
      yourself, as the insurer or even the purchaser of the policy…do you want 
      to broadly enlarge the scope of “Who Is An Insured” under you policy?
       
      4.  Unless handled carefully, additional insured status could trigger the 
      other insurance clause.

      5.  The limits provided by the policy on which the additional insured is 
      added could be eroded or exhausted by claims, or that carrier could have 
      become insolvent, or the policy could have been cancelled with no notice 
      to the additional insured (currently being litigated in some 
      jurisdictions). The same could be true if there is an umbrella policy.
       
      6.  An additional insured usually receives a certificate of insurance as 
      “proof” of coverage.  This is an unenforceable document.