Part III: Third Party Coverage Requirements 

When your client contracts with third parties, enters into leases for property or equipment, requires permits from public entities, or has other agreements with third parties, the third parties may ask your client to maintain certain types of insurance coverages during the term of those agreements. 

The most common coverage requirement is for general liability insurance. However, other coverages may apply based on the nature of your client’s operations under its arrangement with the third party. These can include a wide range of coverages including automobile liability insurance, professional liability insurance, workers' compensation insurance, property insurance, and crime insurance. 

General Liability Insurance 

General liability insurance provides coverage to the named insured against third party liability, property damage, and personal liability claims. A third party may request this coverage of your client when your client is doing work on the third party's premises, entering the third party's premises to perform work or service, developing custom products for the third party, or providing services or products that could lead to third party liability or property damage claims. 

This coverage typically is not applicable when, for example, your client is a lawyer, accountant, or other professional consultant providing advice to the third party and only visiting the third party's premises for meetings. This coverage also is not usually applicable for most product suppliers providing off-the-shelf goods and not providing delivery or installation services. However, even if the coverage is not applicable, a third party may still require evidence of general liability coverage as a standard practice or as evidence of your client's good business practices. 

Automobile Liability Insurance 

Evidence of automobile liability insurance is particularly relevant when your client is using a vehicle in connection with the work that your client is providing to a third party. Your client could be a trucker, contractor, hazardous material transporter, charter party service, or involved in numerous other jobs using an automobile. Or your client may only be using an automobile to go to meetings on behalf of the third party. Other times, some third parties may include an automobile liability insurance requirement as a standard coverage requirement in all their contracts, leases, and other written agreements regardless of whether use of an automobile is connected to your client's operations under those agreements. 

A third party that requests evidence of automobile liability insurance from your client may require that the policy covers Auto Symbol 1 ("any auto") or any "owned, hired, or nonowned vehicles". If your client only has scheduled vehicle coverage, the third party may accept the coverage with a listing of scheduled vehicles. If your client has no owned autos, the third party may accept your client's hired and nonowned automobile liability coverage, which is available under a commercial general liability policy. 

Commercial Property Insurance 

A request for evidence of commercial property insurance providing coverage for buildings and improvements is sometimes a requirement in property lease agreements, property financing agreements, and development agreements. The third party usually seeks coverage on an "All Risk" basis, with the third party as loss payee. 

In construction and development agreements and in leases that anticipate the construction of improvements, there typically are requirements for builder's risk coverage. This provides coverage for buildings and improvements during the course of construction and for temporary structures built or assembled on site, such as scaffolding, cribbing, and construction forms. If the third party does not request builder's risk coverage from your client, that coverage should be carried by the third party under its own property policy. In this case, the coverage is often called course of construction coverage. 

Rental or lease agreements, and some types of financing agreements, may also require that the renter, lessee, or debtor carry rental or business interruption coverage. This coverage will pay the rent or business income during the period that a building is destroyed or rendered inaccessible. Third party lessor requirements typically ask for six to twelve months of rental payments. Third party lenders typically require twelve to twenty-four months of debt payments. Rental and business interruption are time element coverages for indirect losses that occur as a result of direct damage to property. 

Lessors of both real property and personal property (e.g., equipment, furniture) usually require evidence of personal property insurance. Construction contracts and other contracts to provide work or services on the third party's premises may also require personal property coverage. The third party lessor or owner includes the requirement for personal property coverage in order to avoid any potential disputes over liability when there is a loss of a tenant or contractor's personal property on the leased premises. 

Professional Liability or Errors Omissions Liability Insurance

Professional liability or errors and omissions insurance may be required when the named insured is a licensed professional (e.g., doctor, lawyer, architect, engineer, realtor), non-licensed professional (e.g., executive recruiter, computer programmer, public official, surveyor), or service entity (e.g., nonprofit entity, social service agency, hospital, financial institution). 

These insurance policies cover economic losses arising from an error or omission by your insured. Professional liability and errors and omissions liability insurance do not cover direct bodily injury and property damage losses -- which are covered under your client's general liability policy.

Crime Insurance 

Third parties usually require a commercial crime policy or a blanket employee dishonesty bond when your client receives money from a third party or is handling money for a third party (for example, your client may be a financial institution, grant recipient, loan recipient, operator of the third party's facility, temporary employment agency, etc.) or when your client has unsupervised access to the third party's premises (e.g., security firm, janitorial firm). 

A commercial crime policy can cover employee dishonesty, as well as forgery and alteration, theft, disappearance, and destruction, robbery and safe burglary, premises burglary, computer fraud, extortion, guest property, and depository liability. 

Workers' Compensation 

Insurance Workers' compensation coverage may be required in contracts, leases, and other agreements. Whenever the insured has operations on or near water, a third party requesting evidence of workers' compensation insurance typically also requests evidence of coverage for Longshore and Harbor Workers Act and Jones Act requirements. 

When a third party is hiring a contractor or consultant, leasing a property, or issuing a permit, the third party wants to ensure that if any of the employees of the contractor, consultant, lessee, or permittee are injured on the third party's premises, the medical costs to those employees are covered under workers' compensation coverage. 

Since workers' compensation coverage is required by law in California, the third party's request for evidence of workers' compensation insurance may seem excessive. However, the third party may consider it prudent to ensure that the companies the third party enters into agreements with are doing business legally under California's workers' compensation laws and that the third party has the workers' compensation details on file in the event of a claim. 

Although workers' compensation coverage will not eliminate a suit or claim by the injured employee against the third party (these are sometimes termed third party over claims), the injured employee would only be able to recover damages for gross negligence or intentional conduct of the third party, since the employer's workers' compensation coverage is statutorily designated the injured employee's exclusive remedy for injuries on the job. 

Other coverages 

Special risk situations require other coverages to protect the third party - and your client. Some examples are as follows: 

If hazardous waste storage is involved, a lessor may require that the lessee carry a pollution liability and cleanup policy. 

If aircraft are being housed in a hangar, a lessor may require airport and aircraft liability, as well as hangarkeepers liability. 

If watercraft are docked at leased or permitted premises, a lessor or permittor may require protection and indemnity insurance as well as specific property protection for docks, wharves, and piers. 

If a pay-parking garage is attached to an office building, a lessor may require garagekeepers legal liability insurance. 

If your client is a church or social service agency, course instructor, or other entity or person that deals with children, sexual abuse and molestation coverage may be required by a third-party principal, sponsor, or grantor.