by Jeffrey T. LaRosa

This article was published in
The Independent Voice,
the newsletter for the Independent Insurance Agents and Brokers of New Jersey (IIABNJ).
December 2003

The “named insured” provision of the declarations page identifies the individual or entity for whom coverage is provided. One would expect that the application and interpretation of this provision would be simple and straightforward. Not so.

The policy’s definition of “who is an insured” typically takes a full page of an insurance policy. Notwithstanding this lengthy definition (or perhaps because of it) the question of who is a “named insured” can often be the source of significant and costly insurance coverage disputes, and a prudent agent should be sensitive to problems that can arise concerning this provision.

Two examples of such problems are set forth below:

a. Parent or Sibling Corporations. The typical named insured provision does not cover affiliated companies, be they parent or sibling corporations. Realistically, a client may forget or fail to appreciate the significance of the fact that they have established separate corporations, and not bring this fact to the agent’s attention. A prudent agent should make every effort to obtain this information (preferably by written questionnaire in the event a problem subsequently arises). Ideally, each separate affiliated entity should be a named insured.

The problem becomes even more complicated where affiliated entities do business with each other. In one recent case, a European manufacturer and US importer were separate, but affiliated companies. When a problem arose with the product, sparking a multi-million dollar recall, the importer’s recall insurer stepped up to the plate and paid the recall expenses. However, the insurer then pursued a subrogation claim against the manufacturer—who was affiliated with the importer/insured. Basically, the insurer paid insurance proceeds to one company, only to sue its sister company on a subrogation claim. The European manufacturer and the US importer expected and intended that they were both covered under the insurance policy.

In fact, the policy identified the insured as a “manufacturer” rather than simply an “importer.” This description bolstered the manufacturer’s assertion that it was covered by the policy notwithstanding the mis-designation of the named insured in the declarations page. As a result, suit was settled on favorable terms for the insured (thus avoiding any claim against the agent).

b. Individuals and their businesses. The lengthy explanation of “who is an insured” typically states that, where the “named insured” is an individual, that individual and his/her spouse are insured, “but only with respect to the conduct of a business of which you are the sole owner.” This clause complicates, rather than simplifies, the inquiry. Does this mean that a CGL policy issued to “John Smith” covers each and every business venture that John Smith owns, regardless of whether it was disclosed? Perhaps. At the very least, the issue is sufficiently ambiguous that, under these circumstances, a shrewd insured will pursue a claim for coverage and, perhaps, a claim against the agent as well.

What it means to the agent is that, once again, the agent should obtain a list of the insured’s “solely owned” business ventures. Having that list may aid the insurer in subsequently avoiding insurance for ventures that were not known to the insurer at the time the insurance was procured. Just as important, it protects the agent from any potential claims down the road.

These examples show that there are many potential pitfalls that can arise out of the “named insured” clause. As a result, it is an issue that an agent should keep in mind during the application process.