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Business Law

When You Should Be Added to Your Vendor’s Insurance Policy

By May 1, 2018August 23rd, 2021No Comments

Vendors and other independent contractors should be covered by Commercial General Liability (CGL) and Professional Liability Insurance (PLI) policies, which protect them against the consequences of accidents, errors and omissions, mistakes, and oversights when providing services to clients like you.

If they don’t have this coverage (and, in fact, a solid vendor agreemIllustration of two men shaking hands with an umbrella floating over thement will require vendors to carry these policies), you should rethink your relationship. If they do, you want to be listed as an additional insured under your vendors’ policies.

What is an Additional Insured?

An additional insured is a party covered under a vendor’s CGL or PLI policy because they have a business relationship with the vendor that makes them vulnerable to being sued for the vendor’s acts under contract. In other words, you could be sued for conduct that is within your vendor’s scope of duty – and you’d like them to insulate you.

When Should I Be an Additional Insured?

The short answer is: whenever there’s a risk that the vendor’s actions or omissions under your agreement can result in a lawsuit against you by a third party.

Consider a product that is physically or chemically changed while under the vendor’s control; damaged, destroyed, or delayed inventory; a vendor’s failure to inspect, test, or service a product; a manufacturing defect. Draw on your experience and the experience of those in your industry to identify your vulnerable points, and then make sure your scope of coverage is large enough.

What is My Scope of Coverage?

Some vendor insurance policies have blanket language that automatically covers certain parties for all vicarious liability; this is ideal but not very common, because such policies are expensive. If you don’t have blanket coverage, you’ll need what’s called an endorsement that acts as a kind of rider on the policy, adding you to coverage for particular claims against.

The language of the endorsement determines the scope of coverage. Most policy writers will use standard endorsement language provided by the Insurance Services Office (ISO) – but you can draft your own if the vendor is amenable and the price is right.

Remember that the basis for the additional coverage is the endorsement, and the basis for the endorsement is the contract between you and your vendor. It goes without saying that you should always have your agreements in writing. Within that writing, you should also have the vicarious liability coverage requirement and the scope of the policy, where possible.

 

Gene Friedman is a partner at Gertsburg Licata in the transactional practice group.  He may be reached at (216) 573-6000 or at [email protected].

Gertsburg Licata is a full-service, strategic growth advisory firm focusing on business transactions and litigation, M&A and executive talent solutions for start-up and middle-market enterprises. It is also the home of CoverMySix®, a unique, anti-litigation audit developed specifically for growing and middle-market companies.

This article is for informational purposes only. It is merely intended to provide a very general overview of a certain area of the law. Nothing in this article is intended to create an attorney-client relationship or provide legal advice. You should not rely on anything in this article without first consulting with an attorney licensed to practice in your jurisdiction. If you have specific questions about your matter, please contact an attorney licensed to practice in your jurisdiction.

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