Nothing will result in a quicker denial of coverage by an insurance company than when an entity being sued is not listed as a named insured on a particular insurance policy. This is an area which often receives little attention by insurance agents and brokers (and their clients).
But why is this? The answers are numerous, but a common denominator is that whomever places the insurance either does not understand (a) how the "insured" provisions in insurance policies operate (there are differences) and/or (b) the organizational structure of their client. Organizations are often comprised of multiple entities that take different forms/structures and operate in multiple states or countries. For instance, an organization that owns a hotel may have a separate entity to own the hotel, another to hold the liquor license, another to hold the management contract, another to act as the employer, and well, you get the picture.
The lack of attention and understanding is illustrated very well by David White in a posting on his Law and Insurance Blog entitled "Policy Covering 'Any Subsidiary Corporation' Does Not Cover LLC's." The case discussed involves a utility company suing its insurer after the insurer denied coverage for a claim arising from employee theft. The theft was related to two LLC's acquired by the utility. The insurance policy in question covered the utility and "any subsidiary corporation now existing or hereafter created or acquired." The issue boiled down to whether or not LLC's are "subsidiaries". The court concluded that LLC's are not "subsidiaries" and therefore coverage did not apply. The court's reasoning focused on the fact that LLC's are not corporations (read the case (pdf) for the complete particulars and reasoning).
Situations where an entity is not insured under a policy because there was a failure to properly list it as an insured are entirely avoidable. Where possible an "omnibus named insured" provision or endorsement should be in incorporated into insurance policies. Such modifications generally do not result in any additional premium. Underwriters typically will agree to provide omnibus wording once they understand the structure of the organization. Ask and you shall receive.
An example of such omnibus wording is:
“[Insert parent entity name] and any divisions, subsidiaries, affiliated or associated companies, sole proprietorships, partnerships, corporations, trusts or joint ventures, previously, now or hereafter created, and any other entity which is owned, controlled or managed by any of the foregoing.”
Keep in mind that any such provision can and should be customized. The key is to craft wording which properly encompasses the various entities comprising an organization. As with many things having to do with insurance contracts, the devil is in the details.
