The ‘Ins and Outs’ of Liability Insurance – What Every Equine Professional Should Know Part 2
April 1, 2013
Additional Insured and Limits of Coverage for Commercial General Liability (GL) and Equine Event Policies
In the November 2012, edition USHJA provided answers from our three insurance experts and presenting sponsors – Markel, LEGISequine.com, and Equisure – regarding the definition of an Additional Insured and how they affect liability policies. In this edition, our experts answer questions about how Additional Insureds impact commercial liability policies. They also discuss equine event policies and how their structure defines the levels of protection available for your business or events.
Q – Is there a difference between adding an Additional Insured to a personal liability policy as opposed to a farm policy or an event policy?
As Debi DeTurk Peloso, Markel horse insurance specialist explains, “A farm policy is commercial general liability (GL) with property added. An equine event policy and individual trainer liability are commercial GL policies. Any GL policy can have Additional Insureds added.” The impact for doing this however, can be significant. “By adding an Additional Insured, you have now extended your policy’s limits to a third party,” cautions Marnye Langer, Managing Director of LEGISequine.com. “In the case of a judgment, the third party uses up your policy limits first. This could leave you without coverage.” Diane Lesher, President of Equisure adds, “Most agents and insurance company underwriters are going to ask the purpose of the Additional Insured request. The insurance company may or may not agree to add another party depending upon a number of circumstances,” which is why it is so important to review contracts with your insurance agent before entering into any agreements.
Q – Should a policy holder ask for reciprocity from an entity that requests to be named as Additional Insured?
“Only if the policy holder has a legitimate insurable interest in the other party’s operations,” states DeTurk, although this is rarely the case. “A competition organizer is theoretically retaining the services of professional vendors for the event. Professional vendors should have their own GL insurance,” she adds. Since naming parties on each other’s GL policies effectively cancels out coverage for each, there is generally no benefit to doing so. However, in today’s litigious society where deflecting blame seems to be the standard, sometimes reciprocity can be used as a risk management strategy, although it is not necessarily recommended. It is not uncommon for a business to attempt to get another party to accept responsibility for their liability despite the fact that the business carries its own liability policy. Knowing full well that reciprocity can essentially cancel out coverage, Langer theorizes by saying, “it’s possible I might recommend that the equine event ask to be named as Additional Insured on the vendor’s liability policy, if that vendor absolutely insists on being named as Additional Insured on an equine event policy.”
Langer also highlights the need for a making a crucial distinction. “It’s also very important to clarify that the entity making the request actually desires to be named as an Additional Insured on your policy rather than simply requesting to be provided with proof of adequate coverage,” she observes. “I find that many businesses do not fully understand the difference between Additional Insureds and Certificates of Insurance. Often, they are simply wanting to obtain proof of coverage, which a Certificate of Insurance provides,” Langer adds.
Q – Regarding event liability, can one equine event policy cover multiple events (clinic or shows) held in one year? If so, how are the limits of coverage at each individual event affected?
As DeTurk explains, “A Commercial GL policy is easily able to cover multiple events at multiple locations during the policy term. Usually event dates must be declared.” Langer adds that “If structured properly, one policy can cover multiple events, but one has to be certain one understands the differences between the specific limits of coverage.”
A Commercial GL policy is issued with a Per Occurrence limit and an Aggregate Limit of coverage. A typical example of a commercial GL limit would be $1 million occurrence/$2 million aggregate. As its name implies, the Per Occurrence limit is the maximum amount the policy will pay out for any one incident occurring during the policy period. To provide an example, if a policy holder experiences several unfortunate incidents within the policy period which result in four claims and occur at four separate events he or she runs, the maximum allowable claim for any single incident is $1 million. But, here is where the Aggregate Limit comes into play. The Aggregate Limit represents the total amount the policy can pay out during the policy term. “Once the Aggregate Limit of a policy is exhausted, there are no funds left for the remainder of the policy term,” explains DeTurk. Let’s revisit our previous example of the show organizer who experienced incidents resulting in four claims throughout the policy period. That policy holder’s Per Occurrence Limit is $1 million, but if all four judgments result in a claim of $1 million each, only two of those four claims will be paid by the policy because of the $2 million Aggregate Limit. As DeTurk points out, “companies offer various limits of General Liability coverage,” so it is important to evaluate this carefully when purchasing a GL policy.
“Be sure your insurance agent explains the differences to you,” Lesher carefully advises, “and that you, as the insured, have a very clear understanding about sharing the limits on your policy across the events, or if a policy with unencumbered limits (Aggregate Limit per event) would better suit your situation.”
On a similar vein, carrying excess liability might be a sound choice for many professionals. “Professionals can opt for an Excess Liability policy (sometimes referred to as an umbrella policy) which comes into play when a Per Occurrence limit has been exceeded for any single claim,” Langer explains. If a claim came in at $1.5 million for one of the four incidents mentioned above, then the Excess Liability policy would cover the $500,000 that exceeds the $1 Million Per Occurrence Limit. Excess Liability policies are secondary to your regular Commercial GL policy, are purchased separately, and are often a very cost effective method for supplementing your protection.
Carrying adequate insurance is a must in today’s business environment. Protect your investment, protect yourself, and protect your family; make sure your facility, organization, or event has a properly structured policy with highest levels of coverage you can afford to ensure your business is maximally protected.
Any one of USHJA’s trusted presenting sponsors is standing by and ready to answer your questions and assist you in any way to ensure you are maximizing your protection. Their specific contact information can be obtained by clicking on the links below.
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