What’s in a name?
Would an insurance policy in any other name but your nonprofit’s still protect your nonprofit?
Do the names in your additional insured endorsements matter?
Would your policy be any fairer if you did not willy-nilly add every Tom, Dick, or Harry to your policy as additional insureds on a primary, noncontributory basis whilst simultaneously waiving subrogation? (don’t look any of those terms up if they make no sense to you – just a little insurance humor).
The more weighed down your policy gets with additional insureds, named insureds, and so forth, the more diluted (potentially) your policy becomes.
Further, neglecting entity names that are related to, affiliated with, or are subsidiaries of your nonprofit also has pitfalls.
The Names on Your Policy Matter
The names that are included on your commercial insurance policies matter immensely. This fact seems obvious.
Yet insureds (that’s you if you have an insurance policy) do not always realize the importance.
Entities named in insurance policies (either as the main policyholder or as additional insureds) are claiming some sort of ‘insurable interest’ in the insurance contract. Likewise, entities not named in the policy do not have insurable interest.
The consequences could be dire if all the entities with interest in an insurance policy are not accounted for.
For example, if I were a part owner in a commercial building, yet I was not a Named Insured on any level in the policy, I might not be protected or compensated if the building succumbed to fire or blew away in a tornado.
The key principle here is that if your entity is the intended beneficiary of an insurance policy, then your entity best be named as an insured on the policy.
There are three common ways that you can be named on an insurance policy to protect your entity’s interest. Side note: Other individuals can be insured under a policy, but only as they relate to the insured entities. (See my post on who is insured for more information.)
The First Named Insured
The first Named Insured is the primary policyholder. This entity pays premiums, makes changes to the policy, has the right to request proof of coverage, and negotiates any of the details of the policy.
Additional Named Insureds
Do not confuse this with ‘additional insureds’. Additional Named Insureds would be referenced on the main page as insured, often like this:
ABC, Inc. (Named Insured)
XYC, Inc. (Second Named Insured)
123 Pine St.
Anywhere, GA, 55555
It’s simply a matter of the second named insured being listed secondarily in a policy. This means that the second named insured has coverage under the policy insomuch as they have interest in the thing being insured, but that the First Named Insured has primary negotiation and premium payment responsibility.
It’s common for a wholly owned subsidiary to have this status. In the nonprofit world, you might have a subsidiary for-profit LLC as a second named insured.
I have two clients who co-own a building. Both nonprofits are Named Insured on the policy, yet the First Named Insured is my main point of contact in dealing with the building’s insurance.
Additional Insureds on a policy are normally added by an ‘endorsement’ or a change to the policy. Additional insureds can be landlords, funders, grantors, vendors, end-users of a product or service or a contractor that is using your services (among other things).
The Additional Insured entity is NOT intended to have separate coverage for their own, non-related operations under your policy. The entity is intended to have defense under your policy if brought into a lawsuit that you are ultimately negligent for.
For example, assume that I’m a plumber and have a general contractor as an additional insured. I completely foul up my plumbing job and cause damage to a building. If the damaged party sues me and the general contractor, my policy might provide some defense for the general contractor since the negligence was mine.
In the nonprofit world, a human services organization might hire a counseling office to provide some assessment services and request additional insured status. If the counseling office causes injury and both organizations are sued, the counseling office might defend the hiring entity if it were mainly the counseling office’s negligence that caused the injury.
The Pitfalls of Too Many Insureds…
There are a couple consequences to adding too many entities in a policy (in addition to the Named Insured).
- Limits Can Be diluted: The more names or entities that are dotted throughout an insurance policy, the greater the possibility that the main insured might have their limits of liability diluted. If two entities are insured, then the $1,000,000 general liability limit might be split two ways, You assume you have $1,000,000 available to you and end up only having $500,000.
- Juries, Judges, and Lawsuits Can Be Unpredictable: Just because an insurance policy or contract is intended to provide certain protections, you never know what will happen when there’s litigation. You never know if an entity’s additional insured status on your policy might extend your policy to cover that entity’s operations even if not related to you. It’s unlikely, but it’s something to consider.
In the end, extending your policy to more and more entities can have unintended consequences. It’s best to be possessive of your own insurance unless it makes good business sense to add additional insureds.
Pro Tip: If you are adding entities as Second Named Insureds or Additional Insureds, consider purchasing an umbrella policy to make sure your limits are sufficient to address all of the stakeholders.
A Note About Forgetting to Name Those Who Should Be Named…
While it’s not a great idea to add a bunch of unrelated entities to your policy as additional insureds, it’s also good practice to make sure you include all of your related entities as needed.
If you are a community redevelopment nonprofit, it’s vital to make sure you cover any LLCs you create to do rehab or construction projects in your community. Often, you’ll take out separate policies for these LLCs, but it’s important to make sure all your related entities are accounted for by an insurance policy somewhere.
Likewise, if you are a fiscal sponsor of a nonprofit, consider making sure that the sponsored organization has it’s own insurance or is specifically added to your own policy to address any gaps in covered operations.
The names on your policy will determine who is covered by your policy. Don’t take that lightly or gloss over it when you are reviewing your insurance program.