Alarm companies doing commercial work are constantly being asked to name their customers, general contractors, property managers, building owners and others as Additional Insureds on their liability insurance.
For most companies this has become pretty routine: the customer asks for a certificate, the alarm company forwards the request to its insurance broker, the broker issues the certificate, and everybody moves on.
But there is a lot more going on behind that certificate than most alarm companies realize.
Insurance brokers and agents typically only have authority to issue certificates that reflect coverages already present in the insured’s policy. Decades ago, when getting an Additional Insured certificate wasn’t nearly as common of a requirement, this often meant the broker had to request that the insurance company issue an individual Additional Insured endorsement for each entity requesting it.
That could take anywhere from one to several days, which could hold up a job, and the insurance company would often charge an additional premium to issue the endorsement.
As Additional Insured requests became more common, those obstacles became more problematic until the insurance industry came up with a much easier solution: Blanket Additional Insured endorsements.
These endorsements basically say that if the insured enters into a written contract with a third party, and that contract states that the insured is required to provide Additional Insured coverage to that third party, then such coverage is automatically provided subject to the terms of the endorsement.
Once these blanket endorsements became built into policies, there was usually no additional charge and no more waiting for the insurance company to issue a special endorsement every time. The broker could immediately issue the requested certificate and attach the existing blanket endorsement so everyone could see the actual coverage being provided.
And that’s an important distinction: the certificate itself doesn’t create the coverage. The policy endorsement does.
But that’s just for “standard Additional Insured wording,” and increasingly that isn’t enough. A customer’s contract may also require that the Additional Insured coverage be primary and non-contributory, which can make the alarm company’s insurance take the legal hit first even when there’s mixed or contributory negligence between the alarm company and its customer.
In those situations, the broker either has to get the insurance company to manually add an endorsement expanding the coverage, or the alarm company’s policy needs to already contain a Blanket Primary & Non-Contributory endorsement providing that coverage whenever a written contract requires it.
Insurance companies HATE providing broad blanket Additional Insured coverage because they know it opens them up to additional liability. But they have largely been forced to provide it because their insureds tell them these requirements are mandatory and they either provide the coverage or their customer loses the job.
Our office insures hundreds of alarm companies and issues tens of thousands of Additional Insured certificates for them every year. At least here in California, an alarm company can easily require somewhere around 30 to 50 Additional Insured certificates for every $1 million in revenues it does.
Most of these requests arise out of business-to-business work. That can mean a commercial customer directly, or residential work being done through a general contractor, property manager or similar organization. It is mainly commercial entities that require this coverage, and they require it through their contracts.
Which gets to the most important point. The key to controlling this risk usually isn’t controlling the certificate. Nowadays the policies often already contain the blanket endorsements that allow the certificate to be issued.
The key is controlling the contractual language the alarm company agrees to in the first place.
We frequently advise our customers to check with their attorney and try to negotiate out of particularly heavy-handed insurance requirements before signing a prospective customer’s contract.
But most of the time the discussion eventually comes back to the same question: “How much extra is this coverage going to cost me now?”
If the answer is “nothing,” there usually isn’t much appetite to push back. We hear things like, “These are standard requirements that we run into all the time,” or “It’s just part of doing business,” and, of course, “That’s what I have insurance for.”
And that’s understandable. But the fact that the insurance company isn’t charging you another $250 today doesn’t mean the requirement costs you nothing.
You’re still potentially agreeing to transfer substantially more risk onto your company and your insurance policy. If that results in claims being paid that otherwise would not have been your insurer’s responsibility, those losses can eventually show up in your premiums, your underwriting, or even your ability to obtain coverage.
The other thing alarm companies need to remember is who wrote the customer’s contract: Their contracts were written by lawyers with the goal of protecting their company, not yours.
These contracts can contain insurance requirements, indemnification provisions, defense obligations, waivers and other risk-transfer language that isn’t easily understood or negotiated by a non-lawyer.
Your insurance broker can tell you whether your policy appears to satisfy the insurance requirements. We can point out wording that looks unusually broad. We can also tell you when the coverage being requested simply isn’t available under your existing policy.
But your insurance broker isn’t your attorney.
When a customer hands you a contract containing significant indemnification requirements, we strongly encourage having your attorney review it before you sign it. Only legally trained eyes are likely to see all the traps.
Sometimes the customer won’t negotiate. Sometimes the job is important enough that the alarm company decides to accept the requirements anyway.
That’s a business decision.
But it should be an informed business decision—not something discovered after the contract has been signed and somebody in your office sends your broker an email saying, “Please issue the attached certificate ASAP.”
Additional Insured certificates may look like routine paperwork. The real issue is the wording in the contract that required the certificate in the first place.
Review the insurance requirements beforehand, and when the contractual language gets complicated, have your attorney look at it.
The best time to find the trap is before you step in it.
We help companies navigate complicated insurance requirements all the time. If you need assistance with that on one of your jobs, please reach out, we’re glad to help.
About the Author
Larry St. John is a 20+ year veteran of insurance and risk management for the construction and electronic security industries.
He can be reached at LStJohn@eclipseinsurance.com
