Sanitation Journal - Additionally Insured Endorsements

Additional Insured Endorsements...
What are you giving away?

Mark Herring is a Certified Risk Manager and a Certified Insurance Counselor. Mark has specialized in the portable
toilet industry for 11 years, insuring a large percentage of sanitation businesses within the United States. Mark can be
reached at 1-800-208-6912 or by fax 1-800-215-0147. You may also email Mark at markh@heffgroup.com.

It is becoming extremely popular today for everybody to ask everybody to ask for a certificate of insurance that
names the certificate requestor as an Additional Insured on your insurance policy.
I have been asked to explain what you are actually giving up, by doing this. Well, you are giving up a lot. This made
sense with the original intent. The original intent was to be able to defend more than one person at one time in the
event of a law suit. This is convenient when a person sues multiple parties (shot gun approach) for one occurrence.
When somebody decides to sue due to an injury, they sue everybody they can think of. Let us say you are a
drywall company. Your drywall supplier is delivering drywall to the job site. While making the delivery, one of the
supplier’s employees steps in a whole and gets hurt. This injured person will sue you, the General Contractor (GC),
the developer, and his work comp. carrier. If you have named the GC and the developer as an Additional Insured
(AI) on your insurance policy, your insurance company will defend them at the same time your insurance company
will defend you. If they are not named as AI’s, they have to hire attorneys to defend themselves. The party that will
more than likely be at fault for the claim is the GC, but the injured person will sue everybody that had anything to
do with the area… that is just the way it is. So, your policy will still have the expense of defending the GC for a
claim you had nothing to do with. You will also have a possibility of paying the damages of the claim. Why,
because you agreed to.
Now let’s put a twist to this, the GC had asked to be named as an AI “with primary wording” onto your insurance
policy. This is getting to be fairly common. This AI endorsement (with primary wording) basically says, even if
you were not negligent for the damages to “someone who was injured because of you/your equipment/or your
activities,” you will pay all defense costs as well as any damages. The key to this is the negligence part. You need
not have even done anything wrong. You were not responsible in any way. Now when this same suit from above
happens, it is your claim. You get to defend you, and the GC at the same time (because you named him as an additional
insured). To make it even better, any settlements that are made get paid by your insurance policy (due to AI and primary
wording). The amounts paid will go against your claims experience. Keep in mind, you had nothing to do with this claim
other than making a phone call and placing an order for material. Because you allowed the GC to transfer all of his exposure
to you through a contract (Additional Insured Endorsement... with primary wording), you now have to pay the claim. Does
this sound fair? No! It is legal. You agreed to it, in writing, so it really is fair! You also need to know the ramifications of
what you are giving up by offering these certificates of insurance, Before you give them out. Actually you should know
what you are going to have to give up, beofre you enter into the agreement for this job.
Now let’s put one more twist into this. Let’s say you had been the above drywall contractor and you had requested an AI
from all of your major suppliers, including the drywall supplier. Now when this claim happens, it goes to the GC, the GC
gives it to you, you then give it to the supplier (because they named you as an additional insured)... wait a second, that is
where the claim started. That’s right, and it is just like musical chairs for a claim. The only problem here is the music is never
going to stop. This is how ridiculous things are getting.
Just keep in mind, protecting your company’s ability to get insurance is more important than one contractor. I have many
clients who will not give this AI endorsement, I commend them for their guts to stand up for what is correct and right. They
pass, on work that is putting their business in jeopardy. Accepting to pay for a risk that you have no control over is
playing Russian Roulette with your future. If the company you entered into this agreement with has a large claim, you may
end up being uninsurable. If the person who is asking for this says it is no big deal, then tell them it should be ok if they
don’t get it. Most of the people you talk with, doing “the asking for certificates,” have no idea what the ramifications are to
these certificates. You need to know. If you agree to do this, it really is your fault if something happens. You should know
what these agreements mean to your business.
Other problems we see on a daily basis have to do with exchanging two words. The two most important words in the small
paragraph that makes up this endorsement are either “your work” or “ongoing operations.” Which two words you are
providing to your GC’s could mean a big difference in what you end up being responsible to pay for. Simply put, if your AI
says “your work,” you are basically required to provide defense and coverage for the person named on the AI until the
statute of limitations runs out (example-- 10 years after the project is completed --in CA). This means, you just might have to
provide defense on behalf of the GC because the roof leaked six years after the building was built. The defense part of the
endorsement doesn’t even have to have anything to do with your services. All you did was provide a portable restroom?
That is correct!!! Now, the two words you are really looking for are “ongoing operations.” You want these words because
they say your responsibility to defend the party named as AI will end, when your ongoing operations end. Doesn’t this
seem right? When your restroom is gone, your exposure is gone, and your contractual responsibility should stop! This
seems right, which is why the GC wants the other wording. The GC wants more than they deserve. They are asking for the
world, as long as you keep giving it to them, they will keep asking for it. Remember... you don’t want to give “your work”...
You do want to give “ongoing operations,” on your Additional insured endorsements.
You should know what you are getting into! Certificates aren’t the simple little things they used to be two years ago. Just
for our sanitation accounts we used to have one person spend about 20% of their day on certificates. Today, she spends
90% of her day working day on certificates of insurance, for about the same number of clients. A complete discussion on
this topic would take hours! It just isn’t the same as it was two years ago. You really are giving up a lot. The drywall claim I
mentioned above is a true story. I could give other true stories, if you had a couple of hours, I could tell you about a few of
them. This is a quiet problem that could explode when the claims really start getting through the system, and it is just a
matter of time. Many companies have had to go out of business just because of claims from situations mentioned above.
They had so many claims (of other people’s), they could no longer get insurance at an affordable price. Just (don’t) do it! A
lot of the GCs will ask for the world. If you tell them you can’t (or won’t) provide the AI wording they are asking for, many
simply say ok- and go about their business. Give it a try and see what happens.
Protect your business. Don’t offer to pay for someone else’s accidents. I am sure you have enough to do to control the
accidents your people have. Don’t volunteer to pay for the claims and accidents of the people you happen to do business
with.

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