Additional insured endorsement allows transfer of risk

The additional insured endorsement is a poorly understood concept among insurance professionals and lawyers, Stephen Cavanagh, senior partner at Cavanagh Williams, told delegates at the Canadian Defence Lawyers 4th annual insurance coverage symposium in Toronto on Feb. 28.
Often insurers will take on risks arising from a business operation that is entirely separate from that of the named insured, with little or no additional premium, he said. In fact, this often happens with very little underwriting evaluation, he added.
The additional insured concept is a vehicle for contractual risk transfer. The endorsement can be added to CGL insurance policies to extend coverage to entities other than those named in the policy, Cavanagh wrote in his handout.
It is just one of many risk management devices wherein parties and insurers seek to transfer risk by way of a contract, he added.
The confusion stems in part from the fact that there is no standard wording for the endorsement, he wrote.
Generally speaking, under additional insured endorsement, an insurer agrees to extend coverage to someone other than the named insured, Cavanagh noted.
Usually this is done as a result of a contractual undertaking by the named insured, having its insurer add the party with whom the named insured is contracting to its policy.