Additional Insured-Lessor of Leased Equipment

Eventually, every contractor or subcontractor faces a job where he needs to rent or lease equipment in order to complete the project. Securing the equipment usually involves a written contract in which the leasing company will ask the contractor to provide proof of insurance. This proof usually takes the form of a "certificate of insurance" and, in almost every case, the rental company wants to be named as an additional insured to protect their legal liability and interest in rented/leased equipment.

The above situation can be addressed by endorsing a version of the Additional Insured-Lessor of Leased Equipment form onto the contractor's liability policy. The basic version specifically names the rental company. It is normally used for contractors who rent equipment only occasionally, or rent it without a written contract. The other form is for the contractor who frequently enters agreements to rent equipment. This form covers the interest of any leasing company from whom equipment is rented by the contractor when a written contract is involved, and it does so without having to endorse the policy each time to name the rental firm.

Because of various court decisions, the Additional Insured Lessor form was recently changed. A number of courts interpreted the form's language quite broadly. Specifically, some courts found endorsed contractor policies obligated to provide defense coverage and indemnification to equipment lessors even when the lessee (contractor) had no responsibility for the loss that triggered the lawsuit. Removing some conflicting language changed the forms. The revised forms are written with a clearer intent. They should apply only in losses where there is, at least, some degree of fault or negligence on the part of the contractor.

A contractor and an insurance professional should approach this subject with a checklist to be sure that all the important items are handled. To start with, be sure that the rental company has its own liability insurance. This is suggested in case the contractor renting the equipment is not negligent or responsible for a particular job site incident involving the equipment and liability reverts back to the equipment's owner. In this case, maybe get a certificate of insurance from them! Next, ask all relevant parties (contractor, rental company insurance agent, insurance company underwriter) to review the rental contract. This step assures that everyone is aware of its terms and conditions and how it matches up to the coverage and limitations of the additional insured form. Next, make sure to use the same language to add the rental company on the certificate of insurance and to attach the corresponding form to the policy. It is also important to understand that additional premium charges may be necessary. In such cases, be certain that all parties accept the reasoning for the charges. Finally, it is critical that al parties be aware that coverage ends when the work is done and the equipment is returned to the rental company.

This additional insured form can help a contractor out in special situations, but it is only useful when all parties take the time to use the form properly.

COPYRIGHT: Insurance Publishing Plus, Inc. 2004

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