Professional Liability Insurance Tracking - Additional Insureds
Do you request an additional insured endorsement from professionals that work for or with you? Have you experienced trouble obtaining additional insured endorsements from professionals?
It is common practice to request an additional insured endorsement from General Liability insurers and there is a great body of law and experience surrounding those requests. Professional Liability insurance is different. In most cases, underwriters do not allow Additional Insured endorsements on professional liability policies. Getting an Additional Insured endorsement can be vexing particularly for construction projects or other circumstances involving municipalities other government agencies, lenders and others accustomed to being named as an Additional Insured on all liability policies. Why is it so hard to get an Additional Insured endorsement from a professional liability policy?
Professional Liability coverage is triggered by an allegation of negligence regarding the rendering or failure to render professional services. Parties seeking to be added as an Additional Insured to a Professional Liability policy are generally not a professional firm or providing professional services. Instead, such parties are looking for defense and coverage for suits brought against them. If allowed, such parties would be expected to tender claims for defense to professional liability insurers whether or not an allegation of professional negligence surfaces. Such defense claims would likely be denied by the professional liability insurer as these exposures are contrary to the underwriter's expectations and the policy wording.
Regardless of whether it is reasonable or not, underwriters are also unwilling to add professional and non-professional parties seeking to be added as an Additional Insured for their passive negligent acts related to the covered professional services. Underwriters argue that they cannot review, evaluate and price such exposures and would prefer that each party obtain their own professional liability insurance or write a single policy for all parties related to a single project or endeavor.
Here are several reasons why you should be reluctant to agree to or ask for an Additional Insured endorsement on a professional liability policy:
- Insured vs. Insured
An underlying principle of all insurance is a prohibition of coverage for claims made by insured parties against other insured parties. If two parties have an insurable interest in the work, underwriters believe the parties should work together to resolve the issues instead of suing one another. Insurers especially do not want to fund lawsuits between one insured party against another insured party. Most policies have some form or insured versus insured exclusion precisely for this reason. If an Additional Insured is allowed, most insured versus insured exclusions would void coverage for the Additional Insured for damages against the insured related to their professional acts covered under the policy. If a party is successful in obtaining an Additional Insured endorsement in any circumstance, it is essential that the party should also require that the insured versus insured exclusion be modified to except the Additional Insured from the standard provision to ensure coverage. Some underwriters will agree to do this, others will not. Underwriters that will not generally believe that the parties have a choice: Do you want defense for something that you did not do, or do you want the insured to have resources to make you whole, should they cause you harm?
- Defense Included In the Limits
Most professional liability policies have defense included within the policy limits, not in addition to those limits. This means that all claims investigation and legal fees spent reduce the policy limit. If you have a $1,000,000 policy limit and $100,000 is spent on claims and defense expenses, then there is only $900,000 remaining to pay any claims. Such policies are commonly called a wasting limit policy. If other defense resources are available to the Additional Insured outside of the professional liability policy, the Additional Insured may actually be reducing the available coverage under the professional liability policy by insisting on a separate defense. The primary intent of the professional liability policy is to provide coverage for the insured for claims arising from the rendering of or failure to render professional services, contractual liability defenses for Additional Insureds will effectively reduce the policy limits and leave less for actual damages.
Exceptions To Every Rule
While most underwriters have a hard and fast rule against extending AI status of course there are exceptions to every rule. There are some types of professional liability where the need for Additional Insured status by the clients of an insured are so compelling that carriers will provide the endorsement. Such clients include government agencies, municipalities, public authorities and instances involving healthcare facilities or environmental contractors and consultants. Healthcare and environmental liability professional liability policies may also include general liability coverage components and underwriters that specialize in these areas are likely more familiar and comfortable with Additional Insured requirements.
There are other circumstances when underwriters may provide AI endorsements on a case-by-case basis. Circumstances where there is a very clear vicarious liability exposure to third party because the additional insured is hiring the professional to do 100% of the professional work or the professional is doing the work in the name of the additional insured as in design build projects. In these circumstances, the additional insured is hiring the insured and the exposure to the additional insured is the work of the insured. Nevertheless, in these instances it is more likely that the additional insured will be sued for the actions of the insured. Most underwriters can be persuaded to extend additional insured protection to the additional insured in these rare circumstances.
Regardless of your circumstances, it is essential that you consider professional liability additional insured requests very carefully. As outlined above, underwriters generally will not agree to add any parties as an additional insured except in rare circumstances. There are philosophical reasons and practical reasons for their unwillingness. If you believe your circumstances warrant an exception consider carefully if your circumstances or unique to a specific project or event or necessary for all of your operations. If you must have an exception, it is essential that you consult both a qualified attorney and insurance professional to weigh your circumstances and to be sure that your contract language is appropriate whether you are requesting an additional insured endorsement or being requested to provide one. It is also essential that your request be accompanied by a request to amend the insured v. insured exclusion to avoid negating the AI protections you seek. Your legal and insurance professionals will also be able to help you make the case with underwriters why an exception is necessary and to outline steps you have taken to minimize underwriter risk.