When shopping for an insurance policy or examining your existing policy, consider insurance endorsements to mitigate specific risks or loss exposure. Endorsements broaden or narrow coverage on your existing insurance policy; most insurers offer this type of add-on that allows you to increase or add coverage.
Insurers place some endorsements for their own protection, while you place other endorsements to protect your business. It's important to know your options when considering insurance policy coverage, and discuss your risk-management goals with an insurance representative.
What are insurance endorsements?
According to the National Association of Insurance Commissioners (NAIC), "An endorsement, also known as a rider, adds, deletes, excludes or changes insurance coverage." An endorsement can also be used to increase standard limits of coverage and takes precedence over the original policy.
Insurance endorsements can replace your current policy, or you can add them to an existing policy. Additional documents can modify an existing insurance agreement, policy definition, exclusions, or conditions in the coverage form; they can also add more information to the declarations page.
How do insurance endorsements work?
You may already have encountered a pre-drafted standard endorsement – rider – to your existing homeowner's policy, such as additional coverage for household mold removal, or backed-up sewers or drains. Such an endorsement mitigates specific risks related to costly repairs or household damage.
These types of policy endorsements are similar to those used in business insurance. In business insurance, endorsements may protect business-related property, mitigate equipment breakdown risks, or extend the reporting period for errors and omissions coverage. For example, your business insurance policy can contain endorsements like umbrella coverage.
Standard endorsements are templates written by insurance organizations, such as the American Association of Insurance Services (AAIS) and the Insurance Services Office (ISO), that have been previously tested and interpreted by the courts.
If an insurance endorsement is nonstandard, it's specific to the policy owner and drafted directly from the insurance company with adjustments to a standard template.
Common insurance endorsement functions
While there are specialized endorsements, most insurance endorsements handle these broad changes:
- Modify or add coverage. An endorsement can modify or expand the scope of your existing coverage. For example, it can add industry-specific enhancements, extra parties, new business locations, or loss payees. State law even mandates some endorsements, such as the length of time you can cancel a policy.
- Exclude or narrow coverage. Some endorsements exclude coverage for certain types of claims to help mitigate your company's risk. A recent coronavirus-related example in property insurance policies is an exclusion because of viruses, bacteria, or other microorganisms. In another example, certain professional services policies have endorsements that narrow existing coverage by excluding coverage for bodily injury and property damage arising out of negligence.
Endorsements can also be content changes under these categories:
- Editorial changes: These updates are made by the insurer and clarify the policy without changing the coverage.
- Administrative changes: These revisions reflect the document's validity, and incorporate details like an updated mailing address.
How to use endorsements
Here are the most common ways to use endorsements to modify or add coverage to your current policy.
The average claim for commercial property damage is about $30,000, according to The Hartford (see our review of The Hartford). Consequently, it's no surprise that business property adjustments are among the most common endorsements. A business property endorsement can include extended insurance coverage on your equipment or products. You can also opt for endorsements that increase or decrease your company's property limits.
Blanket additional insured
You'll usually find a blanket additional insured endorsement if you have a commercial general liability or commercial property policy. This kind of endorsement extends protection to a person – such as a contractor, client or another entity – if your business is contractually required to do so. It can also be used as protection against third-party lawsuits.
Waiver of subrogation
Found in commercial insurance endorsements, a waiver of subrogation prohibits an insurance carrier from recovering the money it paid on a claim from a negligent third party.
Prior acts coverage
A prior acts coverage endorsement covers claims for events that happened before the purchase of the liability insurance policy. This is necessary if your insurance policy doesn't include a retroactive date and there are outstanding claims still in process.
Extended reporting period (ERP)
This endorsement, which you can add to an errors and omissions insurance policy, extends coverage so you can submit a claim even after a policy expiration date has passed – typically in the one- to five-year range.
Equipment breakdown or business interruption
When you add this endorsement to your commercial property insurance, it will cover equipment losses and breakdowns, or a business interruption. The interruption may be time and labor costs incurred by a sudden mechanical, electrical, refrigeration or computer malfunction.
Primary and noncontributory language
You would request this endorsement because if you endure a loss, it uses your primary insurance first before seeking a contribution from other policies.
Identity theft and cyber protection
Add this endorsement to your existing policy to insure against losses and expenses, including legal fees from stolen property, identity theft, cyberattacks and compromised data.
This endorsement type is especially important for your small business. Verizon's 2021 Data Breach Investigations Report details how cybercrime affects your company. The report states that "attacks on web applications continue to be high. They are the main attack vector in hacking actions, with over 80% of breaches."
Commercial lease and tenant
By adding this endorsement type to your commercial general policy, you'll cover liabilities incurred by a tenant's operations or negligence in a leased space.
Hired and nonhired auto
This endorsement is helpful for small businesses that don't need a commercial automobile insurance policy but have employees who rent, borrow or use their own vehicles for work. When you add this endorsement to your company policy, you'll gain coverage for physical damage to another person's car, medical expenses if someone else gets hurt in an accident, or legal expenses if your business is sued.
The Hartford offers this coverage, and shares that a hired and nonhired auto endorsement doesn't cover the policy owner – including medical bills if you or your employee get hurt in an accident while using a rented or personally owned vehicle on the job.
How do you add or request an endorsement?
When working with most insurance companies, adding or removing endorsements from your basic policy is as simple as speaking with your broker and discussing your risk-management goals. You can alter your coverage any time during your current policy period or during a natural period of change, such as amid a renewal.
You can also ask if the insurance company has any endorsement samples common to your industry. These endorsements are often available at a lower rate than one you purchase separately.
Many state statutes – including New York's – mandate that insurance endorsements be filed with the superintendent of insurance to be binding. These types of riders can last for the duration of the policy or continue upon renewal.
Endorsements and regulations
Insurance companies can add an endorsement that either excludes or includes a different type of coverage to help mitigate its own risk; however, you must be informed of these exclusions or modifications.
Rest assured, many states have protections and guidelines in place, and such a policy change will be reviewed for approval. According to the New York State Department of Financial Services, which governs the insurance marketplace, "If a Certificate of Insurance amends, expands or otherwise alters the terms of the applicable insurance policy, it constitutes an endorsement that is a policy form, which, subject to certain exceptions, must be filed with the Superintendent of Insurance pursuant to section 2307(b)."
Another example of a state's protections: Under Chapter 2301 of the Texas Insurance Code, "Policy forms and endorsements may not be unjust, unfair, inequitable, misleading or deceptive." Also, "coverage forms are prior approval. Change endorsements may be used to change insured address, etc., but may not be used to change, alter, or 'clarify' coverage in any way. Company must provide verification that the endorsement will not be used to change, alter, or clarify coverage."