Dealing with Business Insurance Requirements from Landlords, Clients, and Investors
We see all kinds of business insurance requirements (and coverage change requests) from our clients’ landlords, clients, investors, business partners, and more. These requests are processed by creating an “endorsement” on the policy that puts the change into effect. From a location change to adding a new coverage to a policy, some endorsements are more complicated than others. Often times we see our clients forced to request an endorsement that they don’t fully understand because of insurance requirements in contracts and a contractual requirement.
If this sounds familiar to you, have no fear! Let’s go through the top 5 insurance requirements from landlords, clients, investors, or business partners. We’ll talk about where they come from, what they mean, how they’re processed, and how they effect your insurance coverage if a claim arises.
1. Additional Insured
An additional insured is a person or entity who would not normally be covered under the insurance policy, but needs to be added due to the contractual relationship in place. For example, landlords often require additional insured status on their tenants’ general liability policy. As an additional insured, the landlord is protected when the tenant invites a client into the building that slips, falls, and sues the landlord. The tenant’s (i.e. your company’s) policy would usually pay out here because you’re the one that invited the guest onto the premises.
We often see clients of an insured requiring additional insured status as well. For example a toy store might require being added to a toy manufacturer’s policy because, in the event a toy harms a child, the store may be held liable for simply selling the toy. The majority of additional insured requests occur on a General Liability policy, though an additional insured can be added to an automobile or professional liability (Errors & Omissions and/or Cyber) policy as well.
Entities can be included as additional insureds fairly easily — all we request is the entity’s name, address, relationship to the insured, and why they are requesting the additional insured status. Once an entity is added, they often require a Certificate of Insurance evidencing their status as an additional insured which we can produce upon request.
Short story: Landlords, clients, and business partners will almost always want to be added as an additional insured to your general liability policy. Clients and partners may also want to be added to your professional liability or auto policies as well.
2. Loss Payee/Lenders Loss Payable
Similar to an additional insured, a loss payee is an added person or entity specifically to an insured’s property insurance. A loss payee is most commonly someone who has leased equipment to the insured.
For example, a company who rents film equipment in order to produce an instructional video for their website might be asked by the equipment leasing company to add them as a loss payee for the replacement value of the equipment rented. That way if a lens cracks or a camera breaks while the equipment is in the hands of the renter, the leasing company is covered for the lost equipment.
A lenders loss payable endorsement is a slight variation that applies to a creditor who has loaned money to the insured. In this case, if the insured suffers a major loss, the creditor is covered for the amount that they loaned.
In order to add a Loss Payees and Lenders Loss Payables to a policy, carriers often require the entity’s name, address, and relationship to the insured.
Short Story: Leasing companies, landlords, and investors will often ask to be added as a loss payee or lenders loss payee to your property insurance.
3. Waiver of Subrogation
A waiver of subrogation (“WOS”) often accompanies an additional insured endorsement. Subrogation is the right of the insured to recover losses from the party who is deemed liable for said losses by law. So, a waiver of subrogation is an agreement that the insured waives subrogation rights against the additional insured entity if a loss occurs.
For example, let’s say a landlord requires a waiver of subrogation on their tenant’s policy. If a third party gets injured on the premises and sues the tenant, the waiver of subrogation will prevent the tenant’s insurance carrier from seeking contribution for the loss from the landlord. This provides added protection for the landlord than just additional insured status because the tenant’s insurance carrier may still sue the landlord for something like negligence even though they are added to the policy. A Waiver of Subrogation prevents that and thus is often included in the insurance requirements of a potential client, landlord, or investor’s contract.
A WOS can be added at the request of the insured entity and may result in additional premium depending on the insurance carrier.
Short Story: Landlords, clients, and business partners will often ask for a waiver of subrogation be included in their favor so that you cannot seek contribution from them for a loss. We can add a waiver fairly easily along with additional insured status upon request.
4. Primary & Non-Contributory Clause
Also a common accompaniment to an additional insured request, a primary & non-contributory clause determines the order in which different insurance policies contribute to a single loss. If this is endorsed to an insured’s policy, it means that their policy must pay out the loss first and not seek contribution from other policies until its limits are reached. Like a waiver of subrogation, a primary & non-contributory clause helps prevent any additional insured entities from paying out for a loss using their own insurance.
Short Story: Landlords, clients, and business partners will often require your insurance policy pay out for a loss first and without contribution from their policy. This can be added along with additional insured status.
5. Notice of Cancellation
A notice of cancellation (NOC) is included in the declarations of any insurance policy, requiring the insurance company to provide a designated amount of days’ notice before it intends to cancel the policy. Some causes of cancellation are nonpayment of premium or the event that the insured’s operations have been altered and are now deemed off-risk. Additional insured entities often require an amendment be made to the “NOC” clause to give them notice as well. This gives landlords, investors, or business partners who are added as an additional insured fair warning that they will no longer be covered as an additional insured under the policy.
Short Story: Landlords, clients, and business partners will want anywhere between a 10-30 day notice if your insurance carrier intends to cancel the policy before the designated expiration date. We can request a notice of cancellation be sent to any additional insured entities at an additional cost (depending on the carrier).
You’ll likely encounter all of business insurance requirements in your contracts and term sheets as your company grows. But don’t worry…we can take care of them relatively painlessly. If you have any questions or need to make any of these insurance requests, feel free to reach out — we’re happy to help!