Understanding the Difference Between a Named Insured and an Interested Party
When engineers work on projects, it’s not uncommon to be asked by clients or principal contractors to add them to your Professional Indemnity or Public Liability insurance as a named insured or an interested party.
While this may seem like a simple request, it can have significant legal and financial implications. Understanding the difference between these terms and the potential risks is crucial for protecting your business.
What is a Named Insured?
A Named Insured refers to an entity explicitly listed in the insurance policy who is not the primary insured but is granted the same rights under the policy. They can enforce the policy directly against the insurer and make claims.
- Key Point: By adding another party as a named insured, you are effectively sharing the full coverage of your insurance policy with them. This means that they can file claims under your policy, and any actions or negligence on their part could impact your premiums or claims history. If your policy contains a cross liability clause, they can also lodge claims for losses between the insured entities on the same policy.
What is an Interested Party?
An Interested Party is an entity with an interest (typically financial) in the insured project or business but no direct rights to enforce the insurance policy. They may be designated as third-party beneficiaries (TPB), meaning they are entitled to compensation for specific losses as outlined in the policy.
- Key Point: Interested Parties are informed about the policy’s existence and status but cannot make claims or benefit directly from the policy (except as a third party beneficiary) unless expressly allowed.
Interested Parties on Professional Indemnity Policies
In Professional Indemnity (PI) policies, the term ‘Interested Party’ is not commonly acknowledged in the same way as it is under Public Liability policies. Extensions on Professional Indemnity are typically referred to as Principal Indemnity Extension.
Insurers can be reluctant to note the interests of others on Professional Indemnity and may wish to view the contract and understand your relationship with the other party.
It is reasonable to expect other parties to obtain Professional Indemnity insurance, and other insurances which they may need, to insure/cover their own risks and liabilities.
Risks of Adding a Named Insured
- Shared Coverage: Any claims involving a Named Insured could reduce your policy limits or expose you to liability for their actions.
- Higher Premiums: Claims or risks introduced by a Named Insured can increase your premiums.
- Control Over Claims: A Named Insured can independently report claims or settle disputes, potentially conflicting with your interests.
When to Use an Interested Party Instead
Designating an entity as an Interested Party is often a safer alternative, offering reassurance without exposing your policy to unnecessary risks.
Examples include:
- Clients: Clients may request to confirm sufficient coverage. Listing them as Interested Parties achieves this without granting them direct policy control.
- Lenders or Investors: Lenders often require assurance that insurance is in place. Adding them as Interested Parties keeps them informed without affecting your policy terms.
Why Engineers Should Proceed with Caution
Adding another party to your insurance policy can have unforeseen consequences.
Always:
- Review the Request: Determine why the other party is asking to be added and whether listing them as an Interested Party meets their needs.
- Consult with Your Broker: Understand the implications of adding a Named Insured on your coverage and claims history.
- Check Contractual Obligations: Ensure the request aligns with contractual requirements and explore safer alternatives where possible.
Get More Advice
While adding another party to your insurance policy might seem simple, the implications can be significant. Engineers should proceed cautiously and consult with their insurance broker to understand the full impact of adding a named insured rather than an interested party.
By taking the right approach, you can protect your business from unintended liabilities and maintain control over your insurance coverage.
The information on this blog and website is of a general nature only. It does not take into account your individual financial situation, objectives or needs. You should consider your own financial position and requirements before making a decision. We recommend you consult a licensed insurance broker in order to assist you.
