In an insurance policy, every word counts. Different names, terms or titles and the order in which they appear can make all the difference in whether there is coverage under a particular policy and how that coverage will be applied.
“Named insured” refers to the person, persons or entity specifically named on the declarations page of the insurance policy and to whom full policy coverage is made available—except for certain possible exclusions or limitations that may be within the particular policy. Note that not being named on a policy does not in itself mean there is no insurance provided under the policy. Coverage may still be afforded as an “insured,” as defined within the particular policy.
There are several significant potential problems, however, when there are multiple named insureds. First, any one of the named insureds can submit claims and potentially exhaust the policy limits, leaving no coverage available for other insureds under the policy.
Second, if the policy is auditable, each named insured’s exposures can be included and make the policy subject to additional premium charges. These additional premiums will be the responsibility of the “first named insured.” This is the first name that appears on an insurance policy with multiple names and this is the only insured that has total control of the policy. Effectively, they own the policy. Being first means they get all correspondence, including notices of cancellation. They are the only one who can change or cancel the policy and they are the only one legally responsible for paying premiums, including any additional premiums developed by audit of the other named insureds.
It is a common insurance requirement to mandate that certain parties be named an “additional insured.” The status of an “additional insured” is conditional and not absolute. The conditions are set forth in the policy language, by endorsement to the policy or both. “Additional insured” status is extremely complex and determining whether or not someone even qualifies is the first step (the ISO CG 20 series of forms can provide some helpful guidance on this).
There are two endorsement methods that will add an additional insured to a policy. The first specifically schedules the name of the additional insured. The second is an endorsement referred to as “blanket additional insured.” This method does not specifically schedule names, but is a general granting of automatic status to other parties as additional insureds. The catch is that a written agreement is required. (Note that insurance companies can also create their own endorsements for either of these methods, and their wording can add more restrictive requirements for status to apply.)
Meeting these requirements is important. If a claim arises and additional insured status is sought, one of the first things the claims adjuster will ask is to see the contract to determine that the claimant qualifies as an “additional insured.” Without the proper language, there will be no coverage.
These three words—“named,” “additional” and “insured”—can be easily transposed, either by misunderstanding or typographical error, but given their specific meaning in an insurance policy, the impact of such an error can be serious. Incorrect placement of a single word can affect the terms of coverage and the scope of the policy. Simply designating someone as an “additional named insured” rather than using the more limiting “additional insured” status, for instance, grants them use of the full limits of the policy, which can prove costly when it comes time to make a claim. As a result, risk managers should closely review policy language to make sure it says what they intend it to say.