Bob is absolutely right on this. You really need to get in touch with the insurance carrier PRIOR to instructing in ANY aircraft. Some insurers', such as AVEMCO, for example, automatically cover a QUALIFIED instructor (note the key word-emphasis, emphasis--if you are instructing in a Scout, say, and have 50,000 hours of tailwheel time, but one hour in a Scout, you are NOT a qualified instructor, by most insurance company's assessment) giving dual instruction to the named insured. If you then become a "named insured" you will NOT be covered, since the named insured is specifically PROHIBITED from giving dual instruction in the subject airplane.
In that case, you'd want to get a letter of subrogation, since you'd be covered, but AVEMCO (just an example) could still subrogate against you if you were found at fault in the accident. And, you WILL be, if you're instructing, or as Bob says, even if you are just sitting in the right seat.
Some insurance carriers, on the other hand, want an "approved instructor" to be an additional named insured (or some other legal term--forgive me, cause I'm not sure the exact terminology), in which case the instructor should do that AND get a letter of subrogation.
Finally, GET WITH NAFI and take out some liability insurance coverage, at least, as an instructor. If anything bad happens, a year later, and the guy does something really stupid, his heirs can come back at you and claim that you taught him to do all that stuff.
Look at the John Denver accident. Wasn't an instructing accident, but a family of a guy with more money than anyone but Bill Gates sued some poor homebuilder who was just trying to build a safer airplane. But because he changed the design, and Denver wasn't able or knowledgeable enough to switch tanks, he crashed. The builder got sued, basically to teach him a lesson.
Who do you think won that one?
Protect yourself, CFI's and Bob is absolutely correct: If you are seated in the right seat of an airplane, and you hold a CFI, even if you've never flown one of these aircraft, the NTSB and FAA will find you to be PIC.
MTV