Christopher Boggs, chief consultant at Boggs Risk and Insurance Consulting, returned to respond to the excellent comments left in his recent post. He will tell you more below. Happy reading.
A few days ago, I published an article titled “Banks should not require additional insurance status.” “In this article, I believe that banks should not be conditioned on the borrower’s liability policy.
After several attempts to post this article at various locations, I finally got a reply from a party defending the bank request to be an additional insured. Response to read:
Lenders are often named, whether correct or not, as co-defendant and as borrower when someone is injured or damaged by the borrower’s actions. This can be a problem, especially in the case of loans obtained by real estate. Since the distance of the lender is controlled, you should not be involved in the right objects, but they are often dragged in any case. Having an additional insurance status helps resolve defense costs until the lender is fired. In any case, the borrower may be obliged to compensate the lender, so this is not as misleading as you suggest.
I’m glad someone finally gave an opinion. Unfortunately, while I think this is a good point, the opinion does not provide a valid reason for additional insurance status. This is a reason that has no impact.
ISO’s Commercial General Liability (CGL) strategy extends insurance status to three “insurers” Within Policy Language:
- Named Insurer: Grant the widest coverage
- Extended Insurer: Usually those natural persons who own and/or operate businesses, such as directors, senior management and limited liability companies/members.
- Automatic insurer: These are usually people who actually work and provide services/products (such as employees and volunteers) to the business.
In addition, the policy also allows the inclusion of “other insurers” through recognition. As mentioned above, other insurers are insurers with ongoing business relationships (usually created by contracts) or symbiotic relationships with the insured.
As mentioned earlier, neither bank has maintained these two relationships.
However, those responding to and commenting to previous articles mentioned that even if the bank does not have any of these relationships, they may be included in the lawsuit and therefore should be other insurers.
While lenders may be pulled into suits improperly, this argument forgets a key element of ISO CGL. Not only does CGL extend coverage to previously cited insured persons, but the policy also extends protection to contract indemnants.
Paragraph 2 Supplementary Payment – Coverage A and B read:
- If we defend the “litigation” of the insured and the insured’s insured is also known as the party to the “litigation”, we will defend the insured…
The status is one compensation Created by the provisions of loan documents and inclusion in compensation agreements. The additional insurance status is no Banks are required to obtain defense and protection of insurance companies.
If the bank truly believes it has exposure, such exposure should be managed through contractual risk transfers, and requiring the borrower to claim compensation, defend and hold the bank in case of (or even mistakenly) in the case of litigation. This is the appropriate way for banks to manage this potential.
Additional insurance status should be limited to parties to the ongoing business/contractual relationship with the designated insured or those with symbiotic relationships. Only those parties who have such a relationship with the insured have real alternative liability for the acts of appointing the insured.
Insurance policies are not about achieving the goal of better achieving through contracts and contract risk transfer. Insurance is just a financing mechanism; contract and contract risk transfer are the main sources of management and transfer of risks. Uncomplied CGL supports the correct use of contract risk transfer.
So far, no one has provided a feasible reason to grant the bank as a loan requirement. But I’m still interested in the opinions.
interested in Other insurers?
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