Manufacturers and distributors often purchase general liability policies for the selling and distribution of their goods. As an alternative, they can purchase what is known as a vendor’s endorsement to provide additional coverage for product liability beyond the vendor’s coverage.
What Are the Benefits of a Vendor’s Endorsement Policy?
Having a vendor’s insurance policy gives the manufacturer and distributor additional product confidence because a vendor’s endorsement prevents product liability claims from driving up the general insurance policy’s premiums.
As an example, it is common for vendors to require that a manufacturer or distributor purchase a vendor’s endorsement for $3 million.
What Are the Costs of Owning a Vendor’s Endorsement Policy?
A manufacturer or distributor has two options when deciding whether to obtain an endorsement policy from a vendor. It is possible to cover all vendors doing business with the manufacturer and distributor for a total not to exceed 7.5% of the General Insurance Policy. Individual vendors can be covered for $100 to $250.
What Are the Limits of a Vendor’s Endorsement Policy?
Vendors’ endorsement policies have limitations, including the following:
- The coverage is limited to the listed products.
- A vendor can exhaust the aggregate limit for all other vendors.
- The vendor’s endorsement will lapse if the policyholder fails to pay premiums.
- Express warranties are not covered unless otherwise noted in the insurance policy provisions.
- Intentional physical or chemical changes void coverage.
- A vendor’s negligence that leads to bodily injury or property damage is generally not covered.
Is a Vendor’s Endorsement Required?
Vendor endorsements on your products liability policy give your vendor additional insured (AI) status and give your vendor the confidence to sell and distribute your product without fear that a claim will adversely affect their General Liability coverage.
Most major distributors and retailers now require Additional Insured-Vendor status as a condition of doing business. The vendor will typically require insurance coverage limits of $1, $2, or $3 million within their contract, as well as an “occurrence” policy form.
What Is the Cost of Adding This to My Policy?
Each insurance carrier charges differently for adding a vendor’s endorsement to your General Liability policy. Based on the insurance carrier, the cost of a blanket endorsement to cover all your vendors ranges from 0 to 7.5% of your existing General Liability premium. The additional premium for adding coverage for an individual vendor can range from $100 to $250.
Vendor’s Endorsement Limitations
Only products listed on the endorsement are covered.
The aggregate limit stated in the policy applies to all vendors listed on the policy. The remaining vendors cannot access additional limits if one of the other vendors or you (the “named insured”) had a claim and exhausted the aggregate limit.
It is your responsibility as the named insured to satisfy all of the policy requirements and pay your premiums on time so that your coverage does not lapse.
You (the “named insured”) are exempt from coverage if you do not authorize express warranties. If an advertiser or salesman promises the fitness of a product or makes an express warranty that hasn’t been specifically authorized by you (the “named insured”), any liability arising from such promise or warranty would not be covered.
Vendors are prohibited from making physical or chemical changes to products.
Coverage is voided in the case of repackaging, except when it is done solely for inspection, demonstration, testing, or replacement of parts under your instructions and then repackaged in the original container.
If a vendor fails to complete the inspections, adjustments, tests or servicing agreed upon or that is normally undertaken in connection with the distribution or sale of the product, coverage will be void.
Excluding operations performed at the vendor’s premises in connection with the sale of the product, demonstrations, installations, and service or repair operations will void the warranty.
If the vendor (or another party on the vendor’s behalf) labels the products or relabel them after receiving them or uses them as a container, part, or ingredient for anything else, the coverage is void.
“Bodily injury” and “property damage” are not covered if the vendor assumes contractual liability in a contract or agreement (unless such liability would exist absent the contract or agreement).
“Bodily injury” or “property damage” arising solely from the negligence of the vendor, its employees, or anyone acting on their behalf is not covered. Such coverage, however, does not apply to exceptions or to inspections, adjustments, tests, or servicing that the vendor has accepted or normally undertakes to perform in the course of distributing or selling the product.
How Much Does an Additional Insured Endorsement Cost, and How Is it Added?
An additional insured must be added by the named insured. Individuals or entities looking to be listed as AI should make this requirement clear in their contracts. The named insured would need to contact their insurance provider to add an additional insured to their general liability policy.
Additional insured endorsements are a common part of doing business and are made easy by most providers. The named insured typically needs only to provide the name and address of the person or entity they wish to add as an additional insured.
Is it Possible for an Additional Insured to File a Claim?
In the event of a risk event, additional insureds have the right to file a claim. This claim will, however, be heavily influenced by the specifics of the endorsement. A misunderstanding of what is covered and what is not covered can still result in AI being held liable for all or part of the resulting damages.
Thus, all parties to the endorsement must understand the details.
Why Is it Important to Consider Additional Insured Endorsements?
To obtain adequate additional insured coverage, you need to review two major factors.
Obtaining the Correct Endorsement Form
It is important to know if a person or organization needs additional coverage for ongoing operations, completed operations, or both. You’ll need to know which endorsement form you’re looking for (CG 20 10, CG 20 37, etc.) in order to decide whether or not to accept a proprietary endorsement from an insurer.
It could be detrimental to your business if you fail to submit the proper form.
The Language of the Endorsement
To determine whether the endorsement provides the entity coverage that meets their expectations and contractual obligations, the language must be carefully reviewed. In the event of a risk event, incorrect or ambiguous language will affect the scope of coverage for that person or organization.
Details to look for are exclusions from coverage of incidents that weren’t caused by the named insured’s negligence and restrictions on how much the named insured can be held responsible for if a claim is filed.
Additional insured endorsements are not a replacement for entities having their own insurance policies.
Working with other entities requires additional insured endorsements. However, they are not intended to replace one’s own insurance. Several limitations can apply to additional insured endorsements, which are often not apparent until a claim is filed.
Therefore, businesses should always maintain their own insurance policies to cover other liabilities that may not be covered as additional insureds.
Additional insured endorsements are one of the essential fundamentals to watch when it comes to vendor insurance reviews.
Should I Contact an Insurance Attorney?
An insurance lawyer can help you determine if purchasing a vendor’s endorsement policy is advantageous. A qualified lawyer specializing in insurance policies can determine the boundary of coverage recommended for your bus