When underwriters think about risk, fire and theft come to mind. However, one risk that might be overlooked is improperly underwriting multiple named insureds. Yet the named insured is a key element in any commercial insurance policy.
Who is considered a named insured on a policy?
The named insured on a policy includes any person, firm, organization, or any of its members specifically designated by name as an insured(s) in an insurance policy.
Which policies require a named insured?
All commercial and personal insurance products and policies have a named insured.
How can I tell who is listed as a named insured on my policy?
You can find named insureds listed on a policy’s declarations page. Named insured status provides full coverage under the general liability policy, so it is important to understand all of the operations of any named insured listed on a policy.
What’s the difference between having one and multiple named insureds on a single policy?
When there’s just one named insured, the underwriter assesses their operations and then accepts or declines the risk.
With multiple named insureds, this process gets more involved. For instance, if you have more than one named insured on a policy, then one must be assigned as the first named insured. The first named insured exercises management control over the other named insureds on the policy.
How do I know if I should add additional named insureds to my policy?
To justify adding additional named insureds to a policy, the underwriter must review the following:
- Does the newly named insured have an insurable interest? Meaning is there an ownership interest that justifies adding this named insured to the policy?
- Are we comfortable with the newly named insured’s operations?
- Are the named insureds combinable? To be combinable, the entities should have common majority ownership. This means one named insured owns more than 50% of the other named insureds or more than 50% of each named insured is owned by the same majority owners.
If there is a valid insurable interest for adding newly named insureds, the named insureds are combinable, and the first named insured exercises management control over the other entities, an underwriter can feel comfortable adding these additional named insureds.
Keep in mind, if you add a named insured to a policy that doesn’t meet these criteria, it can create a conflict of interest. You could encounter what is known as cross-liability, where one insured sues a party who is also a named insured on the same policy.
This can happen under the principle of “severability of interests;” liability coverage is provided separately to each named insured. In short, poor named insured underwriting can lead to a conflict of interest and litigation between different named insureds.
Read More: How Often Should I Update My Insurance Policy?
Why is named insured underwriting important?
Each underwriter faced with named insured policies wants to ensure the additional named insureds have an insurable interest, that the entities at hand are combinable, and that the first named insured is exercising management control.
Failure to do so can lead to a conflict of interest or possible litigation among the entities. In short, underwriters must always carefully underwrite their named insureds.
Named Insured Underwriting at Central
If you are a Central policyholder, you can rest assured our underwriters review each submission carefully to confirm insurable and ownership interest for each named insured. If you are the first named insured on a policy and wish to add a secondary named insured or ensure that all appropriate named insureds are on the policy, be sure to discuss these topics with your independent Central insurance agent.