"Commercial insurance endorsements" is a phrase commonly used by insurance companies, brokers, and the legal community, but few business owners know what an endorsement actually is.
In short: A commercial insurance endorsement is a document attached to your insurance policy that adds, removes, or changes your coverage in some type or fashion.
But what exactly does an endorsement change about the coverage?
Each insurance policy starts with a standardized coverage form. For general liability, it is most commonly the CG0001 form and for commercial property it is generally the CP0010. These two forms provide a coverage baseline and are used in nearly every industry, on every policy, both large and small.
The problem with lumping every business in the U.S. together on the same or similar insurance policies is that not all businesses need or want the same insurance—it can be overkill. On the flip side, some business activities are far too risky to insure on the standardized form and require a "monoline policy." Those businesses need coverage in addition to what’s standard.
This is why we have endorsements - to customize insurance products to fit the needs of both the customer and the insurance carrier.
Is it good or bad to have commercial insurance endorsements?
When making changes to the standard insuring agreements, it is often thought that endorsements are a bad option for the insured.
Although endorsements can be bad, they can also be good. An endorsement can be as simple as adding clarity to a specific definition or coverage. Or can add coverage that is commonly excluded on the standard policy! One thing is for certain – commercial insurance endorsements are guaranteed to be on your policy. You won't know for certain if they are beneficial or add more risk for your business until you read your specific policy endorsements.
Examples Of Good Endorsements
The list of insurance endorsements we give below are the positive ones. The ones you want to see on your commercial insurance policy. These examples benefit you by adding coverage to your policy.
It is common for insurers to have a specific enhancement endorsement for the industries they serve. This adds a list of coverages that aren't normally included on the standard forms and adds them to your policy.
For example, a contractor's enhancement endorsement could include coverage for your hand tools, property in transit, and a blanket additional insured endorsement form. (You can also ask your insurance provider for insurance endorsement samples that are common in your industry.) These enhancement forms are either thrown in for free or offered for a much lower rate than you could purchase them individually.
This is an example of a good endorsement because it adds coverage to the standard insurance forms that applies to contractors.
Additional Insured Endorsements
Additional insured endorsements are common for almost every industry. Whether required by your landlord, customer, or vendor, this endorsement is something most businesses are familiar with.
Adding an additional insured endorsement changes the original liability coverages from only covering yourself to now providing coverage to an outside entity. For example, if you were a plumbing contractor and work that you performed led to water damage in a home, an additional insured endorsement would cover both you and the general contractor you listed.
Hired & Non-Owned Auto
If you look at an unendorsed liability insurance policy, it specifically excludes coverage for auto-related accidents. This makes sense when you consider that this risk is better covered under a separate commercial auto policy.
What if the business does not own any vehicles, yet still has employees running work errands or going on sales calls? If an employee gets in an accident while doing a work-related task, chances are the business will be involved in an expensive lawsuit.
This is why the hired and non-owned insurance endorsement is so valuable to small business owners. It provides collision coverage to businesses that do not have a commercial automobile policy.
This is another endorsement insurance example that highlights how endorsements aren't always a bad thing. They help you tailor your policy in a way that fits your business’s unique risks and operations.
Examples Of Bad Endorsements
Although some endorsements do provide additional coverage that wasn't included in the original liability coverage form, some remove coverage or alter it in a way that can be detrimental to the policy holder.
This technique is most commonly leveraged by insurance companies to lower their exposure to an unacceptable risk.
Here is a list of insurance endorsements we commonly see that take away or alter coverage in a negative way:
Protective Safeguard Endorsements
Protective safeguard endorsements are a way to ensure an applicant has certain protective features to protect their property such as a central station fire alarm, sprinkler, or burglar alarm. The endorsement states that if you do not purchase or maintain the protective equipment listed they will not pay for certain claims.
For example, if you own a restaurant that cooks over large open flames, the insurance company might add an endorsement stating they will not pay for fire claims if you do not maintain a functioning sprinkler system. This holds the insured accountable for helping to avoid this common (and expensive) restaurant insurance claim, thus making an uninsurable risk now tolerable for the insurance company.
Wind & Hail Deductible Endorsement
If you live in the Midwest and especially coastal regions, this endorsement has become a harsh reality for most property owners.
On a normal commercial property insurance policy, you choose a deductible that applies to all property claims. For example, if you choose a $10,000 deductible, it will be $10,000 out of pocket regardless of the covered loss. But that is not the case for certain areas in the US.
The wind and hail deductible endorsement splits the deductible into two separate deductibles.
The first being the wind and hail deductible, which is usually a percentage of the total building insurance limit. The second is the "all other perils" deductible, which is for every other type of claim except wind and hail related events.
An example of this: If your building is insured for $1,000,000 and your wind and hail deductible is 3%, your deductible would be $30,000 for all wind and hail-related claims.
Wind damage is so expensive and so frequent in certain areas of the country that wind and hail deductibles are nearly impossible to insure at reasonable rates. We suggest that you know how these deductibles work before you have a claim.
With businesses in higher risk fields, such as energy or construction, insurance companies will frequently include an endorsement that only covers operations for the specific trades you disclosed on your application.
For example, if you are an electrician, an operations limitation would not cover your business if you were performing work outside of the electrical trade.
This is to prevent companies from performing operations that present new risks without notifying the insurance company. If you have this endorsement, it is critical that you review your operations with your insurance broker yearly to ensure that your business still falls within the description of operations.
In our eyes, any endorsement that limits coverage is not good, but is a necessary evil in some cases.
Examples Of Endorsements That Clarify Coverage
Not all endorsements radically change the coverage on an insurance policy - some just provide clarification.
Generally, these endorsements clarify terms that could be ambiguous in the original policy form or provide more detail on what is and isn't covered.
Here is an example:
Professional Services Exclusions
Commercial general liability insurance covers property damage and bodily injury that arise from your business operations. It does not cover the professional advice or guidance that you give, especially when that advice or guidance results in bodily injury or property damage. There are professional liability policies that provide specific coverage for this type of risk.
The professional services exclusion endorsement clarifies that the policy only covers bodily injury and property damage arising out of your negligence, not your rendering of professional services.
State Specific Changes
Most commercial insurance policies include a state-specific endorsement altering the conditions of the contract to fit within the laws and guidelines of the state where the insurance policy is based.
This generally relates to cancellation, renewal, and non-renewal procedures and how administrative tasks are handled.
These endorsements don't add or remove coverage, but rather clarify the duties and procedures required of a business in each state they operate in.
There are a multitude of endorsements that could end up on your insurance policy, without even accounting for tailor-made endorsements that insurance companies write for a specific client (referred to as manuscript endorsements).
You must know the function of each endorsement on your policy (especially the bad ones) to know the parameters of the insurance coverage you purchase.
If you want to review your commercial insurance policy endorsements and discuss the potential impact each one could have on your business, let us know.