Manufacturers name vendors, tenants name landlords, associations name volunteers, contractors name owners. The list goes on and on. ISO currently publishes nearly 30 standard additional insured endorsements, seemingly one for every situation imaginable. In addition there are the special carrier endorsements and those that must be designed particularly for that “special situation.”

They're so prevalent that we hardly pay attention to them when reviewing an insurance policy. But the subject of additional insured coverage often is misunderstood.

One of the most frequent problem areas is the idea that a contractual requirement to add an additional insured to an insurance policy is the same as a contractual hold harmless or indemnification agreement. While both clauses frequently appear in the same contract, they are separate and distinct from one another.

Indemnification Clauses

Contracts frequently include clauses in which Party A (the indemnitor) assumes the legal liability of Party B (the indemnitee) for damages arising from activities outlined in the contract. These clauses, called hold harmless or indemnification agreements, fall into the risk management technique of non-insurance transfer. They transfer the potential financial impact of an exposure from Party A to Party B. Examples of contracts that often contain this type of clause are purchase agreements in which the manufacturer (Party A) assumes the legal liability for damages arising from its products from the retailer (Party B). Other types of agreements that commonly include such clauses are rental agreements, equipment leases, and construction contracts.

Coverage for this type of liability transfer is provided for in the contractual liability section of the standard ISO commercial general liability policy. It is important to keep in mind that the indemnification provision applies regardless of whether or not insurance is in place. In the absence of contractual liability insurance coverage, a company that has assumed the liability of another will be forced to finance the transfer with its own assets. Additional information about contracts of indemnity and appropriate insurance treatment is contained in The FC&S Bulletins. See Commercial General Liability Definitions, see CGL Coverage Form—Coverage A see Owners and Contractors Protective Liability Coverage Form see Contractual Liability Exposure and see Owners and General Lessees Risks.