Insurance requirements are something all companies must manage. Oftentimes, the insurance requirements included are from boilerplate language and may not be applicable for the type of relationship you are entering. It is important for businesses to ensure that the insurance being required of them is aligned to their policy language. It is possible to negotiate insurance requirements and tailor them to better fit your specific relationship.
Below are some of the most common discrepancies between insurance requirements and policies that you should be aware of.
1. Additional Insured Wording
Your policy wording may not be consistent with the insurance required of you regarding additional insured wording. For example, most additional insured forms have wording that requires a contract to be in place for additional insured status be provided. If there is not a contract or only insurance requirement samples are provided, there may be an issue with additional insured coverage being provided.
The additional insured form specified isn’t the form that you have on your policy, which could provide different coverage. For example, the forms that are most commonly requested are the CG2010 11/85 and the CG2010 10/01 paired with the CG2037 10/01. This differs from the forms commonly found on insurance policies, the CG2010 04/13 paired with CG2037 04/13, and does not provide as broad of coverage compared to the former forms.
2. Indemnification and Contractual Liability
Indemnity provisions cannot be fully covered by typical contractual liability coverage as there are exclusions and limitations in all insurance policies. Indemnity provisions can reach beyond the scope of insurance. The aspects that are not covered by insurance and the liability you may be taking on need to be considered when making your business decision. This is something that should be reviewed and discussed with your attorney, so you are informed before making that decision, as there are differing state indemnification laws, language and court rulings to consider.
3. Third-Party Coverage
Employment Practices Liability and Crime
When employment practices liability or crime coverage is required, it is important that third-party coverage is provided if a party is looking to be covered by another party’s policy. Employment practices liability and crime policies apply on a first-party basis, meaning only to the insured. Third-party coverage is not included in standard policy language and must be endorsed onto a policy, which may require an additional premium. If you are looking to be covered by another party’s policy, it is important to make sure third-party coverage is included.
Workers’ Compensation Policies
I have seen an increasing number of insurance requirements asking for additional insured status on Workers’ Compensation policies. However, this coverage is not typically provided on Workers’ Compensation policies. What should be requested is a waiver of subrogation, and in the case of a staffing agency, an alternate employer endorsement as well. These endorsements will help protect a company from being held liable for injury to a third-party’s workers.
Property policies may also require additional insured status, however, there are very limited situations where this may be available or applicable to a third-party. What most likely should be requested is Loss Payee status, as this would entitle the third-party to payment from the insurance company for covered claims.
Taking the time to understand what you are agreeing to and how your insurance coverage corresponds can be the difference from being covered or on the hook for losses. Contact a Marsh McLennan Agency (MMA) advisor for more information about differentiating policy language and insurance requirements.