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Adding End Users as AIs to Manufacturers’ CGL Policies

Author: Bill Wilson
“My client is a tool distributor (ABC) that does a lot of business with a very large business (XYZ) in our area that buys their products. XYZ is demanding we provide XYZ with a Certificate of Insurance showing XYZ as an additional insured on ABC’s CGL policy. Our underwriter says that end users of products cannot be added as additional insureds on the manufacturer’s CGL policy, there’s no way to do it. If something is wrong with the product that XYZ buys and uses, then ABC should not pay that claim, the manufacturer should. We've received a few minor concessions on the COI from XYZ, but there is no bending on the additional insured request. What's the best solution?”
I don’t know any real reason why this can’t be done other than virtually no underwriter does it. It’s not a standard business practice in the industry. I suppose it’s happened from time to time, but I can’t recall a single instance where this issue has come up and the underwriter was willing to do it. The best guy in the country I know on this is VU faculty member Craig Stanovich, a risk management consultant in Massachusetts who writes a lot for IRMI. I asked him for his experience and this was his response: 
“As a general matter, I would have to agree with the underwriter's position.
“While a vendor of a product certainly can be added as an additional insured, the buyer (or end user) cannot and should not. The reason a vendor is added is because the vendor is in the ‘chain of commerce’ and thus may be held strictly liable for a product it sells. That is not the case with an end user - it is not their product and strict liability for the product (let's say it is for a defect in the product not caused by the end user) would likely not be the basis of liability for the end user. On the other hand, the end user may be held liable for its negligence in the use of the product that may not arise in any way out of the products design, manufacture, etc.
“In other words, the manufacturer/distributor would not be held liable because the cause of the liability is the negligence of the end user and not related to inherent properties of the product itself. In other words, the exposure to the end user is not products liability exposure as the item is not ‘your product’ from the standpoint of the end user.
“While this is not certainly an exhaustive treatment of the subject, this is roughly analogous to auto distributors or manufacturers adding each auto buyer as an additional insured. This is not a generally accepted business practice or risk management technique. XYZ's reason for demanding AI status as an end user seems entirely misplaced and may be based on a misunderstanding of products liability versus general negligence. I am not aware of any AI endorsement that would provide coverage for the end user of a product for a products liability exposure.
“I will concede this is not the result of any comprehensive analysis, but rather is what I would suggest is a common sense understanding of the purpose of the vendor's AI endorsement (including my memory of an opinion I wrote several years ago regarding the purpose of vendors AI).” 
I suspect this carrier and most others will stand firm. A similar situation I hear frequently is where a condo unit owner’s mortgage company wants to be added as an additional insured or even mortgagee on the association master policy. It simply isn’t done and it isn’t practical to add every unit owner’s lender (and whomever they sell the mortgage to) as an insured.
What this party is asking for is unreasonable, but it never hurts to ask or even demand that which can’t or shouldn’t be done.
Last Updated: January 18, 2024
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