Automatic Additional Insured

Automatic additional insured refers to additional insurance coverage that is automatically included in an insurance policy. The automatic additional insured endorsement is attached to the policy, and allows the policyholder to avoid having to list out each party that needs to be covered under the insurance policy.

Businesses that purchase liability insurance often request additional protection for contractors and other parties to be "automatic additional insured" because they are collaborating on a project with the primary insured. This additional coverage is purchased in order to protect the business from any liabilities stemming from the activities undertaken by the contractor. Since the request for additional protection is such a common occurrence, insurance companies have started to incorporate automatic coverage.

The controlling aspect of the contract as it pertains to additional coverage is the endorsement, not the contract itself. An automatic additional insured endorsement thus becomes the attachment to the insurance policy that provides coverage for parties that the policyholder is required to cover.

Purchasing insurance policies with an automatic additional insured feature requires not only a close examination of the policy contract itself, but also an examination of how well the policyholder has managed its contracts with any subcontracting party. A subcontracting company purchasing a commercial general liability insurance policy may potentially be dealing with thousands of certificates of insurance. The policyholder needs to know whether a written contract or agreement exists for every party that makes a request to be included as an additional insured party.

Insurance companies that provide automatic additional coverage want to protect themselves from claims that may arise from the policy contract. They will focus on the agreements between the policyholder and any additional party associated with the policy, and try to unpack whether agreements between the policyholder and any other party require the insurer to extend any coverage. This can cause financial difficulties for policyholders if they had assumed that additional insurance endorsements had actually provided the coverage that they were assumed to be providing.

The status of additional insureds is usually conferred when the named insured and "such person or organization have agreed in writing in a contract or agreement that such person or organization be added as an additional insured on your policy."

This means a person or organization is additional insured via automatic additional insured endorsement only if the relationship is formalized through other documentation that indicates the nature of the relationship and the desire for additional insured status. What is critical here is that the documents upon which coverage rests exist entirely outside (and independent) of the additional insured endorsement.

However, parties to such a contract won't know if their extrinsic documents pass muster until the additional insured actually tenders a claim. This is precisely the wrong time to find out whether coverage is really in place for the additional insured. It may be necessary to consult legal counsel to ensure documentation between two parties is sufficient to satisfy the relevant insurance company.