Additional insured coverage is an important but often overlooked protection. Even where a party has heavily negotiated its indemnity rights, in the event of a significant loss, status as an additional insured can be critical.
By naming the primary policyholder’s contractual counterparty as an additional insured, an insurance company purports to extend coverage to that counterparty as well as to the primary policyholder, i.e., the “named insured.” Additional insured issues arise frequently in the construction industry, but also come up in manufacturing, information technology, energy and any other industry where vendors or subcontractors provide services pursuant to contract.
Where there has been substantial property damage, economic harm or bodily injury, plaintiffs often seek “deep pockets” to name as defendants, even where the culpability may be minimal (or nonexistent). Regardless of the suit’s merits or ultimate outcome, all defendants are likely to incur significant defense costs. Access to additional insured coverage for this type of expense is a vital but often overlooked component of any well-drafted service contract—and ensuring access goes well beyond simply requiring a counterparty to provide the coverage.