Vol. 8 No. 10		October 1989

Your clients are concerned about the insurance you carry. They have good reason. There is risk in the adventure they are about to set in motion, and they want to be certain they do everything they reasonably can to allocate that risk to those in the best position to manage it.

Some clients have more compelling reasons than others. They may be uninsured. Or, to keep their costs under control, they may self-insure a healthy portion of their risk. These clients tend to be more demanding. They would like to have you insure their risk, as well as your own.

Can you do this? To a certain extent you can. But you need to know the limitations. Otherwise, you could find yourself in something of a quandry; faced with a client who refuses to pay until you comply with contractual requirements you simply cannot meet. The problem is complicated by the fact that there are differences from one coverage to the next. The best approach is to address the coverages one at a time.

It is common for clients to demand that they be included as additional insureds under your general liability policy. Most know this can provide protections they would not otherwise have. They also know that the cost of securing those protections is modest. You can, with relative ease and economy, provide general liability coverage for losses to which your client may contribute and for which he or she would otherwise be responsible.

Knowledgeable clients are not likely to be satisfied with an endorsement which simply names them as an additional insured. They will insist that the coverage be "primary" and that it be "noncontributing." They may also require a "severability of interests" provision. Affording "primary" coverage is not likely to be a problem. Nor is "severability of interests." Most general liability policies issued to architects and engineers are written that way. Most, however, also provide for proportional contribution to any loss for which an insured (or additional insured) has other applicable insurance.

This explains why some clients insist that the coverage afforded them clearly state that no insurance they maintain will be called upon to contribute to a loss. It is also the principal reason your insurer is likely to charge an additional premium for the coverage. There is additional risk.

Some attorneys and risk managers, driven by a belt and suspenders mindset, will also demand an endorsement waiving your insurer's right of subrogation. This is silly, and the demand should be rejected. If a loss is covered under the policy, subrogation against one of the beneficiaries of that coverage is out of the question. Under most circumstances, the courts will simply not tolerate it. Insurers know this, and so do most of the attorneys and risk managers you are likely to encounter.

The situation with your workers' compensation insurance is quite different. What the owner wants is to be free of claims by your employees who may be injured in the course of their performance of your services. The owner also wants to be free of subrogation actions by your workers' compensation insurer, who might otherwise seek to recover losses paid under your policy. Neither concern is unreasonable. Both represent risks you can easily insure.

You can indemnify your client against claims by injured employees and you can (and probably do) insure against this risk under the contractual liability protection of your general liability insurance. What you generally cannot do, however, is name your client as an additional insured under your workers' compensation policy. The principal reason is the absence of an insurable interest. The policy is written to protect you against your liability as an employer for job-related injuries sustained by your employees.

On the other hand, many workers' compensation carriers will agree to endorse their policies to waive their subrogation rights. The additional premium is likely to be modest. It is charged, subject to a minimum premium, as a percentage of the premium generated by the payroll on the project. This is something you can estimate and pass through to your client if you so choose.

Clients who insist on being named as additional insureds under your automobile policy pose absolutely no problem; as long as you do not carry commercial automobile insurance. As strange as this may seem, if your firm owns no vehicles, coverage for "nonowned and hired" automobile liability would normally be included under your general liability policy. An additional insured endorsement to that policy will probably meet your client's automobile liability requirement.

If you do carry separate, commercial automobile insurance, there may be a problem. The protection your client is seeking is likely to be included under what is known as the "omnibus provision" of the policy. The coverage, in other words, is probably already afforded under the basic policy language.

All this is well and good; as long as your client is willing to acknowledge and accept it. Some have trouble with the idea and insist on the added security of an endorsement. They are likely to be disappointed. Very few insurers are willing to issue endorsements which do nothing more than restate the language of the policy. They have found, too often and much to their chagrin, that the courts have a tendency to use such accommodations to discover coverage which was never intended in the first place.

With few modifications that are so rare as to be unworthy of mention in this newsletter, an additional insured endorsement affording coverage to your client is not available under your policy of professional liability insurance. Most clients know this. They understand they have no insurable interest in the policy. Their knowledge may not stop them from asking, but it cannot be done. Delete the requirement from your agreement.

What you can deliver is an endorsement to the policy (or a certificate issued by the underwriters) to the effect that the policy will not be canceled without thirty days' written notice. Such an endorsement is generally available from all of your insurers, although most will balk at notice of "reduction in limits" or "material change." No one knows what these terms might mean, particularly not in connection with policies written with aggregate limits of liability.

These, then, are the differences among the coverages you carry. There are also differences from one insurance company to the next, and you need to know how your insurers will respond to the various demands you encounter. You also need to know the costs. If we have placed these coverages on your behalf, give us a call. We will be pleased to help you distinguish between those insurance requirements which can be met and those which cannot.