If your given name is James and someone mistakenly calls out “Hey Jamie”, you probably wouldn’t respond. Well, as you will read below, neither would your insurance policy.
A key element of any insurance policy often surrounds what is covered. But it’s actually even more basic than that – it should start with WHO is covered.
A Named Insured according to IRMI is “any person, firm, or organization, or any of its members specifically designated by name as an insured(s) in an insurance policy.” The Named Insured is specifically listed on the insurance policy’s declarations page. It is in fact an initial trigger of determining if coverage exists at the time of loss.
There are different levels of “Insureds”:
- The First Named Insured is afforded additional rights and responsibilities including payment of premiums, notification of cancellation, compliance with the audit, premium refunds, reporting of claims, negotiation of terms and changes to the policy just to name a few. They have the power to make decisions for all insureds scheduled.
- Additional Named Insureds can be listed on the policy and are still afforded broad rights and coverage, but not as broad as first named insureds. Additional Named Insureds may include DBAs, subsidiaries, and other legally combinable entities (i.e. all entities listed must have 50.1% or more same majority ownership to be combinable.)
- Additional Insureds have limited rights and coverage and also fewer responsibilities. Any entity requesting to be named as additional insured dilutes the Named Insured’s policy limits. An Additional Insured is not responsible to pay premiums but may be entitled to know of policy changes and cancellation.
For instance, does the bank have authority to call your broker to make a loss payee or mortgagee change? NO, they do not. Does an automobile dealer have authority to delete a vehicle and add a new vehicle? Can an additional named insured (not the first named insured) amend the policy? NO, they cannot.
The First Named Insured and only the First Named Insured holds the power and the responsibility for these changes. The First Named Insured should designate a list of associates who are authorized to speak on behalf of the firm. This list of authorized personnel should also be reviewed and updated regularly.
Organization Types Matter when it comes to the extent of afforded coverage:
Sole Proprietor. If a named insured is designated on the Declarations as an individual, they are personally protected as an insured, along with their spouse (for activities on behalf of the business of which the named insured is the only owner). Coverage does not extend to any personal activities of either the owner or spouse not related to that business. If the spouse owns a separate business, that spouse needs to be listed as a named insured on another policy to obtain proper insurance protection.
Partnerships and Joint Ventures. A partnership or joint venture designated as a named insured receives protection as an insured. Likewise, the partners of the named insured partnership (and their spouse) or members of a named insured joint venture (and their spouse) are also personally insured, but only with respect to the conduct of the business of the named insured partnership or joint venture. Any other activities, either business or personal, that are not conducted on behalf of the named insured partnership or joint venture are not included.
Limited Liability Companies. Limited liability companies are protected if the limited liability company is designated as a named insured on the Declarations page. Members of a limited liability company are granted personal protection for conduct of business on behalf of limited liability company. Managers are also personally insured, but only for their duties related to limited liability company. There is no automatic coverage is granted for spouses unlike other entity types, unless the spouse is either an employee or volunteer worker of the named insured.
Other Organizations. For other organizations designated as a named insured (often referred to as corporations), insured status applies to the organization itself. A named insured corporation’s executive officers (defined as a person holding any officer positions created by the named insured’s, by-laws, or any similar document) and directors are also personally insured, related to their duties as officers and directors of the named insured. Stockholders are personally protected for their liability as stockholders of the named insured.
The importance of a complete and correct listing of a partnership, joint venture, or limited liability company as Named Insureds should not be taken lightly. No person or organization is an insured with respect to the conduct of any current or past partnership, joint venture or limited liability company that is not shown as a Named Insured on the Declarations. In addition, we strongly encourage you to carry forward entities or subsidiaries that are no longer operating. There is no cost to include the names on your policies. In the event they are ever included in a lawsuit there will be no question as to whether they were intended as insureds.
Many times insureds don’t worry about notifying their insurance broker about entities newly formed during the policy term as there is “Automatic Coverage”. To some extent perhaps that holds true, but this is a slippery slope. Policies can cover new entities automatically for a period of time – usually 90 or 180 days – in the standard policy language. For those policies that offer a glimmer of hope about automatic coverage, the fine print will reveal that there is no automatic coverage for partnerships, joint ventures, or LLCs – they must be listed for coverage to trigger. In addition, when diving deeper into newly formed corporations they may or may not fall under this provision as well. Thus, we encourage you to be proactive and alert your broker of newly formed entities immediately.
Policies can sometimes include a Broad Form Named Insured Endorsement. This endorsement portrays as a catch all by reading “The Named Insured includes all subsidiaries, affiliated, associated, controlled or allied companies, corporations, or firms as now or hereafter constituted, for which the Named Insured has responsibility for placing insurance and for which similar coverage is not otherwise more specifically provided.” This is not automatically included in many insurance policies and must be specifically requested to be endorsed. This may be difficult to get and not all carriers are filed to provide such broad language. But if it is available, this should be included in your policy every year.
Sometimes with workers’ compensation, clients opt to show only named insureds that actually have employees and payroll affiliated. With this line and all other lines of coverage, every current or prior operating entity should be listed as a named insured. And remember, you should always include prior organizational names utilized even if they are no longer in operation.
So what’s in a name? With respect to your insurance, it may just be everything.