Chapter 3: Special Insurance Considerations for Freelance Architects, Engineers, and Designers
Part 2: Should Your Client Be an Additional Insured?
It's unlikely that you'll ever work on a project with a contract that doesn't include some kind of insurance provision. Usually, these provisions are no problem, as long as you have coverage in the first place. But sometimes clients request provisions that are difficult or impossible for you to meet. For instance, clients may insist that they be added as an Additional Insured to your Professional Liability policy.
In the vast majority of situations, this is an impossible (and rather silly) request. Your insurance agent simply won't allow the endorsement. If a client does make this request in the contract, it's likely they believe the Additional Insured status will afford them some kind of additional protection against losses if the project goes awry.
This may be the case with other types of insurance policies, but it doesn't work that way with PL Insurance. But how are you going to break the news to your client? Start by explaining the following:
- Clients (usually) aren't design professionals. Professional Liability Insurance protects design professionals in the event that they should make a mistake while performing their services. Because your client isn't contributing services to the project, the client doesn't have any exposures that the policy would cover.
- Insureds can't sue insureds. Most Professional Liability policies contain "insured versus insured" exclusions. This language prevents one insured individual from collecting damages from another person who is insured by the same policy. This means that if you do make an error that causes your client financial losses, they wouldn't be able to sue you. Obviously, that's not in their best interest if they want to protect their investment.
- Professional Liability policies don't reimburse the insured. Instead, Professional Liability policies pay out on behalf of the insured party. The money goes directly to the person who is collecting damages. If the client were an insured, they'd never be able to recoup losses from you.
Clients can't be added on to your Professional Liability Insurance policy as an Additional Insured.
So instead of protecting a client's interests, an Additional Insured endorsement would actually nullify some of your client's legal rights.
Of course, there are always exceptions to the rule. The most common one is when your client actually does have some Professional Liability exposure. For example, if a larger engineering firm hired you as an independent contractor, they might request to be an Additional Insured on your independent policy. That's because they could be held vicariously liable for any mistakes you might make on the project.
NEXT: Part 3: Why Starting and Stopping Insurance Coverage Can Cost You