Every business operates as some sort of legal entity such as a sole proprietorship, partnership or a type of corporation. If a business starts as a sole proprietor, their legal counsel might advise them to create a corporation for additional legal protection. It is crucial when creating a legal entity to know the exact entity name, as it will be used for a variety of documents. For example, a commercial insurance agent will need the name of the entity that operates a tanning salon and signed the lease agreement for the store’s physical space. It is preferable to have all paperwork, including leases, in the name of the entity that operates the salon. If the entity name varies on legal documents, make sure all the entities can be named in some way on an insurance policy.
When it comes to insurance, the legal entity should be the First Named Insured. The First Named Insured is just that, the first named insured that appears on a commercial policy. The First Named Insured has the most rights under a policy – many times, other entities can have insurable interest in a business; therefore those entities might be asked to be listed on the policy. Some common insurable entities are other named insureds, additional insureds and loss payees.
The legal entity that operates the salon(s) many need to provide additional insured status to others because of relationship to the business. In the tanning industry, adding an additional insured is often done to comply with a contractual agreement requiring the Named Insured to do so. The most common example of an additional insured is a landlord. Landlords who require proof of insurance will want the insured listed on the certificate to match the name of the legal entity on the lease. Otherwise, one might be in violation of the lease agreement.
Likewise, finance institutions such as banks and leasing companies often have an insurable interest in a salon. They usually require to be listed as a Loss Payee and/or Additional Insured. As a Loss Payee, they would be a party to whom money or insurance proceeds could be payable in the event of loss. This protects the salon owner and the Loss Payee in the event of a covered cause of loss. For example, if a fire occurred at the salon and a leased tanning system was damaged or destroyed, the Loss Payee would have a monetary interest in that equipment. As with landlords, financial institutions will require that the Named Insured and the legal entity on their contracts are the same.
To help determine who needs to be added to a policy, speak with your legal counsel and a specialized insurance agency. If you fail to provide all the additional insureds and loss payees to your agent, they will not be provided with a Certificate of Insurance. If that happens, leasing companies may charge insurance fees and landlords may advise you that you’re in violation of your lease. Make sure you choose an insurance agency that is willing to work with you on quick certificate delivery. Give your agent correct info the first time around to help speed the process when issuing the requested proof of insurance.
