Additional Insured Vendors

Tom WallaceContracts, Liability Insurance

Distributor and retail relationships change all the time. Adding distribution partners to your insurance is common practice. Additional Insured-Vendors is the technical terminology.

When ending a vendor relationship, beware of clauses that impact your insurance. After terminating a vendor agreement, does that mean the additional insured status no longer applies?

If the distributor/retailer  no longer sells your product and you have no contractual agreement to continue additional insured status, then yes it is likely over.

More to the Story

However, there is a bit more to the story. How about a hypothetical? An injured consumer files a claim today for a product they purchased, from your former vendor, one year ago. Claims can take some time to develop.

Many insurance contracts contain an occurrence trigger. What does this mean? At the time of the occurrence, the coverage in place on that date applies. This goes for additional insured status as well.

Additional Insured-Vendor endorsements relate to your product and the conduct of the vendor. When the relationship is over insurance coverage automatically has a “past” but what about the future?

Back to the Future

What if an occurrence happens in the future? Immediate use of your product is not the issue. Future use of your product is the issue especially when the vendor contract is over.

Some vendors manage future exposure by requiring the manufacturer or importer to continue additional insured coverage beyond the term of the contract. The time frame of future coverage can vary.

We call this an exit insurance clause but really you agree to it in the beginning of the relationship. Vendors use it to minimize the chance of using their own insurance for future occurrences related to your product.

But nobody asks for an updated COI

Often, the vendor will not ask for certificates of insurance to back up the exit clause. They don’t ask because you are no longer an approved vendor.

Exit or future coverage provisions can lead to breach of contract problems. Contracts have hold harmless provisions that need to be funded. It will either be insurance money or your money.   

Terminating vendor contracts are not always cut and dry. Insurance coverage could be a loose end you forget about.