It seems simple. Make sure all entities are listed on your insurance policy.
However, companies often have multiple entities within one organization, which could be created for various reasons.
The named insured defines who is an insured under your insurance policy. When a claim occurs, if the entity that is named in a suit is not listed on the policy, you’re going to have problems because the named insured triggers coverage.
“I have clients who may have a hundred different company names,” says Scott Nuelle, vice president at ECBM. “They might have different operating companies. They might have real estate held in separate companies or partnerships.
“So, you need to make sure that all of those are listed on the policy.”
Smart Business spoke with Nuelle about the biggest mistakes he sees with named insured.
Do you need to list every single entity on all types of insurance?
With workers’ compensation, you’d only have named insureds that actually have employees and payroll. But with general liability, automobile, directors and officers or employment practices liability policies, every entity needs to be listed as a named insured.
This can be an extensive list. For instance, within a trucking company, you may have separate entities with operating authority. However, another company could own all of the equipment — the tractors and the trailers — under a separate name. Then, each terminal could be owned by a different entity. The business might even have another company that actually acts as the employer and leases those employees back to the operating company.
What about organizations that have a Blanket Named Insured endorsement?
To make it easier, many brokers will include a Blanket Named Insured endorsement. But that won’t necessarily protect you because the language in that blanket named insured may not include partnerships, for instance, and you may have a partnership that owns a piece of real estate.
It is always safer to list each entity as a named insured.
What are the most common mistakes you see with named insured?
Many times, people shut down an entity, such as a subsidiary that they are not operating anymore, and then they want to eliminate that name from the policy.
The problem is that you don’t know if a lawsuit is going to be filed in the future. You want to make sure that the coverage remains for an entity that’s no longer operating. It doesn’t cost you anything, so just leave it on.
The other common mistake is not informing your broker of a new entity.
For example, you have a policy that renews on June 1, and you start a new entity on June 15 but don’t tell your broker until the renewal. So, now you’re nine months out and that entity has not been added to the policy.
There is language in most insurance policies that will cover new entities for a period of time, usually 90 to 180 days, which gives you a short grace period. In this example, you would still have a gap where coverage isn’t effective.
Your broker should be proactive about asking you quarterly or every six months to update the named insured list, but on your end you can look at your internal business practices to make sure whoever handles the insurance is informed any time an entity is formed.
How long should you keep an entity on the policy after it has been shut down?
Generally after five years you can eliminate it, assuming there is no activity. But again, they don’t charge you per name.
If you think there’s a chance you could start re-using a name in the future, keep it on.
Insights Risk Management is brought to you by ECBM
