Adding ‘additional insureds’

Is it safe to add additional insureds to your policy? The answer is yes, if you want access to the terminal or the opportunity to continue doing business with that commercial customer. However, it is advisable to choose your additional insured partners carefully.

Jay Johnston

Many terminals and commercial clients now are requesting a certificate of insurance with limits in excess of $1 million and asking to be named as an additional insured. This practice is the result of risk managers designing contractual language in hopes of insulating their exposure to liability via the acts of an outside entity.

That means you.

In some cases this means increasing your company liability limits to meet this one supplier or customer request.

For example, you may carry $1 million, and the certificate request may be for $5 million or higher. The cost to increase those limits must be factored into your cost of doing business and possibly redistributed to your pricing with that customer. The other consideration would be to increase your customer base to redistribute higher liability costs. Higher limits may be a good idea anyway.

In that same vein, many insurance carriers are asking marketers to secure a certificate of insurance from vendors and bottle fillers, naming the supplier/marketer as an additional insured as well.

Using the term “additional insured” on a certificate of insurance adds that entity to your policy and creates a shared-limits situation. If a company named as an additional insured makes a claim for all or a portion of those limits, your limits may be diminished or exhausted by that amount. At this point, for the remainder of the policy period, there may be limited coverage available to you and to any other insured on the policy.

Your vendors are in business to retail propane at a profit and thereby should be required to provide evidence of adequate insurance limits. By naming your company as an additional insured, you would be protected under their policy if named in an incident due to acts of the vendor.

The problem with vendors is that they may be on a shared-limit policy. This means many bottle fillers are named insureds on one policy – thereby already diminishing the limits. Adding your company as additional insured is just increasing the number of slices in the same pie.

Terminal managers also must consider the possibility that a marketer or number of marketers also may be on a shared-limit policy, creating concerns about limits being diminished by other marketers or an unrelated claim. In some cases the paper certifying coverage may be paper with invisible holes.

Just remember, in a soft or hard market, the cheapest deal may involve limit limitations. That said, here are some suggestions to consider when adding or requesting additional-insured status:

• Review your contract and certificate wording with your insurance carrier to make sure you are not obligating your company to a check your insurance company will not cash.
• Keep track of how many additional insureds you add to your own policy and understand that any claim by any additional insured may reduce or diminish your overall available limits.
• Make sure you insulate your company liability exposures from vendors with certificates of insurance naming you as additional insured – after you provide safety procedure training information, verify system code compliance and document safety expectations.
• Make sure you purchase limits of liability that will insulate your company from a catastrophic loss. Minimum limits in a bad situation won’t go very far – especially if they are shared or diminished.
• Make safety your final umbrella to insulate you from liability exposure issues. The more you train, communicate and document such efforts, the less likely you will need to tap those expensive insurance limits.

Jay Johnston (www.thesafetyleader.com) is a seasoned insurance agent, business consultant and safety advisor specializing in serving the propane industry. He is the editor of The Safety Leader Newsletter and can be reached at 612-802-0663 or jay@thesafetyleader.com.