Certificate Holder, Additional Insured, Loss Payee – What they are and who needs them
By Brian Schrumpf
Shippers, brokers, and carriers frequently request Certificate Holder, Additional Insured, and/or Loss Payee status from downstream service providers. Each status – Certificate Holder, Additional Insured, and Loss Payee – has a specific meaning and each confers specific rights.
Shippers, brokers, and carriers should understand the different benefits or each status and ensure their agreements require service providers’ insurance policies grant them the appropriate status.
What is a Certificate Holder?
A Certificate Holder is an entity that receives a Certificate of Insurance from an insurer to evidence the type and amount of coverage afforded to the insured. Certificate Holders are typically provided notification of changes in coverage or cancellation of coverage. Certificate holders do not receive coverage or defense under the insured’s policy.
Who needs to be a Certificate Holder?
Shippers, brokers, and carriers should always request Certificate Holder status from downstream service providers. Shippers should request Certificate Holder status from brokers and carriers, and brokers should request Certificate Holder status from carriers. Carriers should request Certificate Holder status from independent contractor drivers that obtain their own insurance.
What is an Additional Insured?
An Additional Insured is an entity that is added to an insured’s policy and receives the benefits of coverage and defense afforded under the insured’s policy.
Because an Additional Insured receives coverage and defense, insurers may raise the insured’s premium for the additional coverage. If you are the insured, you may not want to add another entity as Additional Insured because your premium may increase. However, if you value your relationship with the entity or have agreed to defend the entity under an indemnification clause, you want to be sure the entity is an Additional Insured on the policy.
Who needs to be an Additional Insured?
Shippers, brokers, and carriers should always request Additional Insured status from downstream service providers, except for one situation – shippers should not request additional insured status under brokers’ and carriers’ cargo policies.
Shippers should request to be added as Loss Payee under carriers’ and brokers’ cargo policies. A broker’s or carrier’s cargo insurance provides coverage and defense for damage to a third-party’s property. The shipper is the third party that owns the property, so they do not want the same coverage afforded to a broker or carrier under a cargo policy. There could be a conflict in coverage if the shipper is both the entity afforded coverage for damage to a third party’s property and the third property that owns the property. Instead of Additional Insured status, shippers should request Loss Payee status on brokers and carriers’ cargo policies.
What is a Loss Payee?
A Loss Payee is entitled to receive the insurance proceeds from covered property.
Who needs to be a Loss Payee?
There are two relationships where Loss Payee status is important. As discussed above, a shipper should request Loss Payee status from brokers and carriers. In addition, carriers and entities that lease tractors or trailers to drivers should request Loss Payee status on the drivers’ physical damage insurance. Often, it is safer for a carrier to obtain physical damage insurance and charge it back to the driver, to ensure there is adequate coverage. In this case, the carrier is the insured, so Loss Payee status is not necessary. However, if the driver obtains physical damage insurance, a carrier or other entity leasing a tractor or trailer to the driver should be listed as Loss Payee on the driver’s physical damage policy. This applies to lease and lease-to-own arrangements.