Overview
When you sign a contract that requires you to name the other party as an additional insured on your liability policy, you are extending part of your coverage to that party for claims arising from the contracted work.
If a claim later arises from the job and the other insured sues you, most standard liability policies still allow you to file a claim for defense and indemnity unless the policy contains an endorsement that specifically restricts insured-versus-insured coverage.
Key takeaways
- Many liability policies include a "separation of insureds" provision that treats each insured separately for claims.
- An additional insured can sue the named insured, and the insurer will generally handle the claim under the policy unless excluded.
- Any payment for such a suit reduces the policy limits available to the named insured and other insureds.
How it works
Insurance contracts often include a "separation of insureds" or similar clause stating that policy provisions apply separately to each insured against whom a claim is made.
That means the insurer evaluates whether the loss is covered and who is liable without collapsing all insureds into a single legal party, so an insured bringing suit is treated as a claimant rather than the policyholder suing itself.
Determinations about duty to defend and duty to indemnify are made based on the policy language, the facts of the loss, and applicable exclusions or endorsements.
What it may cover (and what it may not)
Coverage can extend to defense costs and liability payments for claims arising from the named insured's operations when the additional insured status applies to that claim.
However, some endorsements narrow or eliminate coverage for insured-versus-insured suits, and some additional insured wording limits coverage only to liability caused in whole or in part by the named insured's acts or omissions.
For contract-specific questions about how these provisions interact with contractual liability, see Understanding Contract Liability Insurance.
Common mistakes to avoid
Assuming every additional insured endorsement is the same can lead to coverage gaps; the precise endorsement language matters and can differ between policies and carriers.
Failing to recognize that defense costs and settlements in an insured-versus-insured claim will reduce your policy limits can leave you exposed to uncovered losses.
Agreeing to name many parties as additional insureds without evaluating the impact on limits and potential conflicts of interest can be costly; for construction-related additional insured issues, review guidance such as Understanding Additional Insureds in Construction Insurance.
Questions to ask an agent
Does the policy include a "separation of insureds" clause or any endorsements that limit insured-versus-insured coverage?
Which endorsements apply to additional insureds and do they restrict defense or indemnity for suits between insured parties?
How will defense costs and settlements be allocated, and what effect will a claim have on my remaining liability limits?
Next steps
Carefully review the additional insured endorsement language before agreeing to name another party on your policy, and ask your broker or insurer for the exact endorsement forms that would apply to the contract.
If you need assistance interpreting endorsements or assessing the exposure of naming additional insureds, talk to an agent who can review your policy and contract requirements.
Frequently Asked Questions
Can an additional insured file a claim under the same policy that names them as insured?
Yes; unless the policy has an endorsement excluding insured-versus-insured claims, an additional insured can pursue defense and indemnity under the policy.
Does an insured-versus-insured suit mean the insurer is paying the claimant directly?
No; the insurer evaluates coverage and, if applicable, provides defense or pays damages under the policy, but legally the claim is between separate insured parties, not the policy suing itself.
Will a claim by an additional insured reduce my policy limits?
Yes; any defense costs, settlements, or judgments paid on a claim will reduce the available limits for you and other insureds under the same policy.
What if my contract requires broad additional insured coverage?
Broad additional insured requirements can increase your exposure, so review the contract language and related endorsements with your agent before agreeing.