Placing You First Insurance Podcast by CRC Group

Understanding the True Cost & Pitfalls of Additional Insured Endorsements

November 12, 2020 CRC Group, Sue Cohen, Ron Zimmet
Placing You First Insurance Podcast by CRC Group
Understanding the True Cost & Pitfalls of Additional Insured Endorsements
Show Notes Transcript Chapter Markers

Everyone knows the fine print matters, but it is especially important when it comes to the additional insured endorsements sometimes requested by partners. Clauses requiring such endorsements can be expensive in ways insureds may not realize. Understanding the hidden costs of an additional insured endorsement can keep an insured from unfairly paying for another’s mistakes or unintentionally elevating insurance costs. Contractual provisions requiring additional insured endorsements can vary, and the differences can make a world of difference.

Episode Links:

Negley Associates
Mental Health Risk Retention Group

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Featuring:

  • Susan Cohen - MSW is the Executive Vice President and leader of Negley Associates, a CRC Group Program. Sue and her team are located in Parsippany, NJ where they specialize exclusively in the behavioral healthcare, addiction, and
    social services space.

  • Ron Zimmet - Mr. Ron Zimmet has practiced trial law in central Florida since 1975 and has served as General Counsel for the Mental Health Risk Retention Group (MHRRG), an insurance company owned exclusively by behavioral healthcare providers, for more than 33 years. While he is responsible for providing risk management services to those insured by MHRRG, he also serves as a consultant with Negley Associates, a leader in the behavioral healthcare insurance space. Ron leads Negley’s Individualized Risk Management Program (IRMP), using a variety of risk management and loss spectrum tools to help organizations reduce the risk to employees, clients, and the organization.
     
    An expert in the areas of personal injury, nursing malpractice, and medical malpractice, Ron has been recognized nationwide for his guidance enabling healthcare providers to provide safe, high-quality care. He is published in the Florida Bar Journal and has been a featured speaker in many risk management video and audio presentations.

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[00:00:55] Dan Wentz: [00:00:55] Okay. Today on the podcast, we've got a particularly important discussion about additional insured endorsements, and we're joined by Sue Cohen, who is the executive vice president of Negley associates.

[00:01:07] Company that focuses on behavioral health care addiction and social services. And Sue, can you kind of set this up for us today? 

[00:01:14] Sue Cohen: [00:01:14] So just a minute about Negley associates, Stan Negley is really built a solid reputation as a leading insurance provider for the behavioral health care addiction and social services industries.

[00:01:25] Netherly strives to meet the unique needs of behavioral health care providers by bringing together world-class insurance experts. To create a broad spectrum of customized insurance coverage options. Combining deep industry knowledge, unmatched underwriting expertise, excellent claim services, and top quality risk management.

[00:01:46] Negley ensures that each client benefits from the most comprehensive insurance programs available in today's market. Natalie is also the underwriting manager for the mental health risk retention group and insurance company specializing in providing liability insurance for the behavioral healthcare field MHO RG policy holders are owners.

[00:02:07] They offer a stabilize premiums protection against arbitrary cancellation, and many other services not found in the traditional insurance products, both Negley and MHR, RG, and shorts benefit from the industry's first individualized risk management program at no additional cost to them. It expertly guides insurance through an innovative risk reduction plan that empowers them to focus time and energy, where it is needed.

[00:02:34] Most. Delivering top quality care to their clients today. I'm so happy to introduce mr. Ron Zimmet general counsel for the mental health risk retention group and risk management consultant for Negley associates. Ron leads, Neglia individualized risk management program using a variety of risk management and loss spectrum tools to help organizations reduce the risk to employees, clients, and the organization.

[00:03:01] An expert in the area of personal injury, nursing malpractice and medical malpractice. Ron has been recognized nationwide for his guidance, enabling healthcare providers to provide safe high quality care. Ron will lead us through a very important topic. About why it is essential to consider how you as a broker can counsel your insurance on best practices to adding additional insurance to their policy.

[00:03:27] Dan Wentz: [00:03:27] Okay. Welcome to the podcast. Ron is your second time back here with us. Thanks for joining us again. The first conversation was great. As a matter of fact, Sue and Ron, you should both know that it was one of our most. Listen to podcasts today. So that's definitely, there is interest in this area of the behavioral health care area and what Negley offers.

[00:03:45] Ron, we're going to talk today about how brokers can counsel their clients about additional insured endorsement, clauses in their contracts with vendors and funding sources. Why is this so important? 

[00:03:55] Ron Zimmet: [00:03:55] Well, Dan, thanks. And it actually turns out that small print in contracts really does matter. Clauses requiring additional insured endorsements can be expensive in ways.

[00:04:07] Insureds may not realize. Broker's clients can end up paying for others' mistakes. Brokers can help their clients to understand what they're agreeing to. When they sign a contract requiring an additional insured endorsement, how it could increase their costs and what to do about it. Contractual provisions requiring additional insured endorsements vary from one contract to another.

[00:04:30] The differences can really be important. 

[00:04:32] Dan Wentz: [00:04:32] So what exactly is an additional insured endorsement, Ron? 

[00:04:36] Ron Zimmet: [00:04:36] Well, people who are requesting additional insured endorsement, want the insured to pay for insurance that covers them. In its most basic form, an additional insured endorsement is a part of an insurance policy that identifies a specific third party as being covered by the insurance for claims against them, that the insured causes initially that seems pretty fair and uncomplicated.

[00:05:02] However, third parties often asked for additional advantages, which may get more complicated. And expensive and perhaps unfair. 

[00:05:11] Dan Wentz: [00:05:11] So is there a difference between a named insured and an additional 

[00:05:14] Ron Zimmet: [00:05:14] insured? Yes, there is an additional insured in a named insured are really not the same. A named insured has the complete coverage provided by the policy.

[00:05:24] Along with responsibilities, such as paying the premium and notifying the company of claims an additional insured has coverage that is usually more limited and defined by the additional insured endorsement. 

[00:05:38] Dan Wentz: [00:05:38] As an example of the type of contract language that an insured should look for. 

[00:05:43] Ron Zimmet: [00:05:43] I sure can.

[00:05:44] Here's an example of actual and common contract language and insurers should be on the alert for quote, the coverage for the additional insured must be primary noncontributory and there must be a waiver of subrogation. 

[00:05:57] Dan Wentz: [00:05:57] Okay. So break it down for us. Uh, us common folk who are not lawyers, what is it? 

[00:06:03] Ron Zimmet: [00:06:03] Well, primary means that the client's insurance pays for the defense and settlement of a claim.

[00:06:08] Before any other insurance pays noncontributory means to third parties. Insurance does not contribute toward payment of a claim. The client's insurance pays the entire claim up to the policy limits. Waiver of subrogation means the client's insurance company cannot ask the third party or their insurance company to pay the part of a claim caused by the third party.

[00:06:33] Dan Wentz: [00:06:33] Is that fair? 

[00:06:34] Ron Zimmet: [00:06:34] Well, the initial idea seems fair enough. The client pays for insurance to cover his claims against the third party that the client causes. But what about claims that are caused both by the client and the third party? Shouldn't a third party or their insurance company pay for the part of the claim they cost.

[00:06:52] Dan Wentz: [00:06:52] So, uh, can you give us some examples of, of situations like this? 

[00:06:57] Ron Zimmet: [00:06:57] Well, here are three hypothetical examples, which demonstrate how a client's insurance company could be asked to pay when additional insureds cause injury. First, when the client rents property, if the client rents a building for use as a supervise department, the landlord may ask to be named as an additional insured on the general liability policy.

[00:07:18] Assume for example, that the stairs in the building are not in compliance with the building code because the height of the stairs is too short. The landlord might not disclose the code violation and the insured might not recognize it. If someone falls on the stairs because of the short stair height, both the client and the landlord are likely to be sued.

[00:07:40] The landlord is probably at least partly at fault, but the client's insurance company may end up paying the whole claim, even though the client may not have been negligent. Here's the second hypothetical. When a client leases equipment copy companies often request to be named as additional insureds on general liability policies.

[00:07:59] The copy our company might install a copier, incorrectly creating an electrical hazard that the client does not recognize. If someone is injured, the client's insurance company will likely be asked to pay. And here's a third hypothetical. When a client is responsible for foster child placements, sometimes behavioral healthcare providers have agreements with the state.

[00:08:21] To place children in foster homes. Typically the state will ask to be named as an additional insured. If the state does not disclose important information about a child and the client places, the child in an inappropriate home, both the client and the state could be sued for possible injury. The client's insurance company may have to pay the whole claim, even if the state was partially at fault, 

[00:08:46] Dan Wentz: [00:08:46] additional insured contract provisions, make the client's insurance more expensive.

[00:08:51] Ron Zimmet: [00:08:51] Yes, they certainly can. The first way is by effectively reducing the client's policy limits. Of course, all insurance pays only up to a specified limit. For instance, if the client has a policy limit of a million dollars and a claim for a million $200,000 insurance company pays a million dollars and the client pays $200,000.

[00:09:13] Naming third parties as additional insureds can effectively reduce the available policy limits. For example, assume a million dollar policy limit and a claim for 1,000,200 thousand caused 50% by the client and 50% by the additional insured. With the additional insured coverage being primary noncontributory and with a waiver of subrogation, the client's insurance company, of course pays a million dollars.

[00:09:42] And even though the client only caused $600,000 of the claim, that's the 50% the claimant will have to pay amounts in excess of the million dollar limit. Thus naming the additional insured effectively reduced the client's coverage to 600,000 for that claim. And if the client only has a million dollar coverage for the policy year, the client has no insurance for the rest of the year.

[00:10:07] Another way in additional insured endorsement can increase a client's insurance costs related to the impact on loss history. Of course, insurance companies take a client's loss history into account when they decide how much to charge for premium. If the client has a negative loss history, the premium can be more expensive.

[00:10:27] Loss history means the history of the losses paid on the policy where they're paid for the client's benefit or for the benefit of an additional insured. Thus losses paid for an additional insured are part of the client's history and the premium for future insurance could be more expensive. 

[00:10:45] Dan Wentz: [00:10:45] Can you give us some suggestions about what a broker might recommend to clients?

[00:10:50] Ron Zimmet: [00:10:50] I sure can. First clients should read contract provisions about insurance carefully. So they understand the effect of what they're being asked to sign. And if the client needs it, they should ask for professional help. Typically additional insured endorsements provide coverage. Only for claims caused by the acts of the named insured and does not cover claims.

[00:11:12] The named insured did not cause second because of the negative aspects of the additional insured clauses, the insured should always resist agreeing to an additional insurer clause at all. At a minimum insurance should resist or agreeing to language providing it. The additional insured coverage is primary.

[00:11:30] And noncontributory third advise the client to negotiate the specific use of contract requirements about insurance and indemnification. Clients can appropriately point out that they are only asking for what is fair by asking to admit requirements that additional insured coverage be primary and noncontributory with a waiver of subrogation.

[00:11:53] Additionally before signing a contract, the insured should ask the insurance company for approval of the additional insured language. Clients should not simply assume that the insurance company will agree to the contract wording. If a client has already signed the contract and the insurance company does not agree to the language, the client could both be in violation of the contract.

[00:12:16] And not have additional insured coverage and forth. Understand the specifics of contract clauses, obligating the client to indemnify. Another party contracts often have a separate clause requiring that one party indemnify. The other. This means that if the other party is sued for the client's negligence, the client pays for the claim, the obligation to indemnify the third-party normally extends to the whole amount of the claim, whether there is insurance to cover the whole claim or not.

[00:12:46] Contracts usually do not have a provision that the obligation to indemnify is limited by the amount of additional insured coverage available. And fifth, the client should carefully determine whether it is in compliance with the additional insured provisions of their contracts. Contract provisions requiring additional insured endorsements really do vary.

[00:13:06] For example, some require that the additional insured coverage be primary and noncontributory and some do not. You can suggest that the client have a professional review of the additional insured provisions of the contract and compare it to the insurance policy, to be sure that the client is in compliance with the contract.

[00:13:24] If a claim is made against the additional insured and the client has not secured the correct coverage, the client could potentially be liable for breach of contract. And Dan, the bottom line is brokers who counsel their clients about additional insured endorsements really are serving their clients best interests.

[00:13:41] Dan Wentz: [00:13:41] Great information there, Ron. I really appreciate it. Sue, if someone wants to learn more about, uh, additional insurance, this topic, or any other topic, uh, pertaining to. Uh, mental health, behavioral health care, uh, those types of risks they can reach out to Negley right. 

[00:13:59] Sue Cohen: [00:13:59] That's correct. And if you go to our website@jjnegley.com, you will see a host of links on these risk management topics and many others.

[00:14:09] Along with contact information for both myself and many others on our team at Negley associates who would be happy to assist with any questions that folks have. 

[00:14:20] Dan Wentz: [00:14:20] That's great. And Ron, that's Ron Zimmet general counsel for the mental health risk retention group and Sue COE and executive vice president of Negley associates.

[00:14:30] That is just the tip of the iceberg when it comes to the great information that Negley has put out and all the information that's on their website there. So I encourage everyone to go check them out. Sue Ron, thank you very much for your time today. I appreciate it. 

[00:14:43] Dave Foxx: [00:14:43] This is the placing you first podcast, the placing you first podcast.

 

Tell us a little about Negley Associates
Why are additional insured endorsements important?
Is there a difference between a named insured and an additional insured?
Can you give us an example of the type of contract language that an insured should look for?
Give us some examples of claims where both the client and third parties are liable.
Can additional insured contract provisions make the client's insurance more expensive?
Can you give us some suggestions about what a broker might recommend to clients?