Commercial Insurance Blog

When subcontractors perform work for general contractors, they usually need to show the general contractor that they carry their own insurance.  The same principle is true with resellers of someone else's product and in other close business relationships.  In addition to expecting a Certificate of Insurance showing insurance, the contractor often asks to be named as an Additional Insured (AI) in order to be protected in case of an accident or other loss and potential claim. This is a common tactic of contractual risk transfer.

An Additional Insured is a person or entity that enjoys the benefits of being insured under someone else's insurance policy, in addition to whoever purchased the policy (the Named Insured).

As an example, say a General Contractor (GC) hires an electrician on a project they're doing, as a subcontractor.  The GC will require the electrician to name the GC as an 'Additional Insured' on his or her General Liability policy.  In the event of a claim that happens because of something the electrician did (or didn't do), the electrician’s insurance now includes the general contractor in its defense coverage, plus judgments.   If the electrician caused the damage, the GC keeps the loss off his or her own claims experience. lowering their overall cost of risk.  

Continuing with the above scenario, when we are the electrician’s broker, we often discourage granting Additional Insured status to others since you're now sharing your limits with others.  Getting AI status is good, granting it to others, not so much.  That said, this kind of contractual risk transfer is normal business practice; the CG knows he can find a subcontractor who will grant AI status to anyone willing to hire them.

Why should the electrician push back (if he can)?  Suppose there are two judgments for $600,000 after an incident and the electrician has a $1,000,000 policy; the electrician runs out of insurance when the claim reaches a million dollars...but the GC can still turn to his own policy.   Bear in mind, when we are insuring general contractors, we encourage them to get Additional Insured status from everyone who comes on a job site.  After all, each should be held responsible for their own work, and the general contractor wants to shift costs and exposure downstream whenever possible.

For other commercial insurance topics relevant to your business practices, check out other topics on our commercial insurance blog.  If you have a specific question or concern, please call the Gordon Atlantic Insurance professionals toll free at 1-800-649-3252.