When Your Clients Ask You to Add Them to Your Insurance Policy
What Status Do TheyWant?Additional Named Insured: this status is never given to a client, nor would a client ever want this status if he or she realized the implications. A Named Insured under the policy receives the full scope of protection under the policy, so it is appropriate only for the design firm and any related companies. If a clients were Named Insureds, they could be held responsible for premiums, they could cancel the policy, and you could be forced to pay out under your policy for a loss experienced by that client that has nothing to do with your services.
Additional Insured: this status is occasionally given to a client under a General Liability policy. Although it is more common that an owner ask to be included as an additional insured on the contractor's policy is it sometimes also imposed on a design professional.
To Which Policy Do They Want to be Added?1) Professional Liability policies--Clients cannot be named as either Additional Named Insured or Additional Insured.
Reasons:2) General Liability policies--Clients cannot be added as Additional Named Insureds for the reasons cited above, but can be added as Additional Insureds "as respects the the operations of the Named Insured." This tailors the coverage that extends to your clients to your services for them.
a) The policy is written to cover design negligence. Since the client does not provide design services, being added to the policy is meaningless.
b) According to insurer requirements, the named insureds on the policy must be either predecessor firms or have common ownership.
c) Since the policy is written to pay "on behalf of" the insureds, a client listed on the policy could not collect from the policy in the event of a claim.
3) Workers' Compensation--Clients cannot be named as either Additional Named Insured or Additional Insured.
Experience has shown that the primary exposure for design professionals is in the Professional Liability area. The risks covered by your General Liability policy are primarily office exposures (such as slip-and-fall), or an accident on the jobsite unrelated to professional services. Thus many clients are satisfied by receiving a Certificate of Insurance that lists them as the Certificate Holder. This obligates an insurer to "endeavor" to notify them in advance if the insurer intends to cancel the policy. Presumably at this point the owner would then contact the design firm and point out that a commitment was made to maintain professional liability coverage for X number of years and that allowing the policy to cancel would be a breach of that contract.