Before we can discuss some different situations where named insured matters, we need to understand what the term means. The individuals, firms, and/or LLCs who hold the insurance policy are the named insured. They have the most rights under the policy and access to everything the policy covers.
They’re called the “Named Insured” because they are the ones who have their name on the insurance policy. You’ll find this information on a policy’s declarations page.
This definition, however, can change slightly depending on the exact situation. For example, a manager or member of an LLC is usually regarded as a named insured, but only within the business’s scope. They count as a named insured only when they’re doing company work. Depending on a legal claim’s wording, however, the individual may be separate from the company.
The only way to guarantee coverage in this scenario is to make sure the manager or member is a named insured. Ideally, you want all the names you do business under listed as named insured.
Two Common Examples
Example One: Landlord and LLC
When a building and the business operating out of it have similar ownership, people often assume the business’s insurance will protect the landlord. Usually, this isn’t the case.
To protect the LLC and the landlord, you’ll want both entities as named insured—whether they’re together on one policy, or each have their own policy. If you put them on the same policy, you’re effectively combining two entities you initially decided to separate. It will, however, save some money on premiums.
Before you make this nuanced and complicated decision, however, you should speak with your trusted insurance provider.
Example Two: Importer and Distributor
Oftentimes, a company will import products under one LLC, then distribute them under a separate LLC. In this situation, it’s important to cover both entities. When lawsuits arise because of the product, it’s not uncommon for the plaintiff to sue both the importer and distributor.
In both examples, depending on one LLC’s insurance to cover another’s can result in both businesses taking a huge hit to cash flow. The uninsured entity will have to foot the entire bill for legal proceedings and claim payments, which can impact both businesses even though one was insured.
Additional Insured vs. Named Insured
First, an additional insured is not a named insured. While a named insured has access to all the policy’s coverages, an additional insured can only access a portion of coverages. Being an additional insured is better than having no coverage, but it’s better to be a named insured whenever that’s an option.
Sorting out a situation for every named insured is a complicated process. For the best results, you’ll need to talk to a trusted insurance advisor. If you don’t have an insurance advisor or would like a second opinion, feel free to reach out to us at D&A Insurance.