In a recent case, the Seventh Circuit held that a medical group could not pursue a claim against an insurer for refusing to settle a malpractice claim against one of the group's physicians, within the physician's malpractice policy limits, where the group was not an insured under the policy. After the insurer refused to settle, a jury verdict in excess of policy limits was rendered against both the group and the physician. The group paid the excess amount on behalf of itself and the physician and then both the group and the physician sued the insurer for bad faith settlement practices.
The court found that the duty to settle the claim in good faith extended only to the insured physician, despite the fact that the group paid the policy premiums. Interestingly, the physician's position may not be as good as it first appears. The court suggested that the group may have the right to pursue the physician for contribution or indemnity, and the insurer suggested that the group's payment of the excess amount on behalf of the physician defeated the physician's breach of the duty to settle the claim in good faith. Iowa Physicians' Clinic Medical Foundation v. Physicians Insurance Company of Wisconsin, No. 08-1297 (7th Cir. 10/31/2008).
This case points out the importance of understanding your rights as an insured. Care should be taken to understand the nature and amount of coverage you are receiving under a policy. The names assigned to various types of coverages under a professional liability insurance policy sound remarkably similar, but can significantly affect the scope and amount of insurance coverage.
A "named insured" is a person actually named in the policy as the named insured and is considered to be the true owner of the policy. Named insureds have the greatest protection in terms of coverage and indemnity under the policy. There can, however, be more than one named insured. Named insureds choose coverage types and amounts, receive notices and are responsible for payment of premiums.
An "additional insured," in contrast, typically refers to a person or entity who has been added to a policy by an endorsement, but is not considered to be an owner of the policy. This is the most frequent form in which parties are added to a policy and is generally done to support indemnity obligations.
The endorsement adding an additional insured to a policy generally limits the insurer's obligation to liability for claims arising out of acts performed by or on behalf of the named insureds (e.g., there must be some connection between the claim and the named insureds). The actual coverage available to an additional insured, however, depends upon the precise policy wording. Significantly less coverage can be provided to an "additional insured" than to an "additional named insured." To determine the limitations, one must examine the wording of the applicable insurance policy. Additional insureds have direct contractual rights under the policy, but generally are not obligated to pay premiums and typically do not receive notices unless such right is included in the endorsement.
Additional insureds typically seek coverage for either (1) policyholder's indemnity obligation to the additional insured, or (2) claims resulting from the additional insured's own acts or omissions. The policy must reflect the type of coverage desired. Insurance contracts often include language that only allows coverage in situations where the named insured owes an indemnity obligation to the additional insured.
Finally, a party can be an "additional named insured" which is a hybrid between a named insured and an additional insured. An additional named insured is typically someone closely affiliated with a named insured. When an additional named insured is added to a policy, the named insured is generally extending coverage under its policies to all of the additional named insured's operations. The additional named insured, in essence, has the same coverage as the named insureds, whether or not related to the named insureds, but shares the policy limits. However, the policy and all endorsements must be carefully reviewed as the term additional named insured has not acquired a uniformly agreed-upon meaning within the insurance industry and the rights of the additional named insured can vary significantly.
An additional named insured usually does not have to bear any of the paperwork responsibilities and typically is not responsible for paying the premiums; however, he or she is entitled to notice of policy changes and cancellations. However, in some cases and policies, if the named insured does not fulfill his or her obligations under an insurance policy, they may become a responsibility of the additional named insured. For example, if the named insured doesn't pay the premium when due, then an additional named insured could be required, in some instances, to pay the premiums.