It is possible to offer or receive insurance coverage under somebody else’s policy if you are listed as “additional insured.” In this article, we define “additional insured” and explain how additional insured parties may or may not be affected in a bankruptcy proceeding.
Additional insured is a status related to liability insurance policies. This status provides liability insurance coverage to additional parties that were not named in the initial policy. With an additional insured endorsement, the additional insured party will be protected under the insurer’s policy and be able to file claims.
Typically, additional insured applies when the primary insured party must provide coverage to additional parties for new risks that come from their connection with the named insured’s operations. The process by which new parties can be added to an existing insurance policy is called an endorsement.
Additional insured parties can be identified by name or the policy can have a blanket additional insured endorsement which does not require names but rather a general description of the type of groups or individuals the coverage will be extended to.
For the additional insured, it’s beneficial to be listed as such because it reduces their loss history, leading to lower premiums. However, the primary insured may see the opposite effect as losses from claims will be posted against their policy, potentially raising their premiums.
It is standard for larger and more powerful businesses to require smaller operations to name them as additional insured. For example, landlords may require tenants to name them as additional insured, a general contractor may require subcontractors to name him or her as an additional insured, and manufacturers may require sellers of their products to name them as additional insured.
It is natural to wonder what implication bankruptcy has on the additional insured who are covered under the insurance policy of a debtor who files for bankruptcy. The answer is that bankruptcy does not affect situations in which an additional insured party seeks coverage under the debtor’s insurance policy. This is because additional insured have rights under the debtor’s policies, and bankruptcy cannot impact those rights.
As a way to recover debts, lenders may seek to obtain security over a debtor’s insurance proceeds as an asset. They can ensure access to the debtor’s insurance coverage through additional insured provisions. As an additional insured party, the lender may be entitled to recover the value of lost profits even if the insured is in bankruptcy. This is valid because additional insured insurance proceeds are not considered to be the property of the bankruptcy estate
However, lenders have also been denied post-bankruptcy recovery of a debtor’s insurance policy proceeds even if they were named an additional insured. This indicates that this strategy of asset recovery will not always work.