A primer on Certificates of Insurance

The following post is presented by Andrew G. Gordon Insurance, one of our Renaissance Alliance members. It offers a primer on the ins and outs of Certificates of Insurance. See more business topics at the Commercial Insurance Blog.
A certificate of insurance is a single page usually document that lists insurance policies for a business’s insurance program. Certificates of insurance are typically required when one business engages the services of another, and wants to know whether that business has liability insurance. It is the default document to convey to an interested party what kind of insurance and what amounts of insurance another business has.
A standard certificate will list the general liability, the automobile liability, excess liability, and Worker’s Compensation policies. They also provide the name of the insurance company and policy effective and expiration dates. The latter is most important particularly if the expiration of an insurance policy straddles the time that a job is being done. Thus, it lets the certificate “holder”, or the company engaging another company, when the subcontractors insurance runs out. It is a great management tool for verifying insurance of others in business.
Construction industry
In the construction field, certificates of insurance are provided for important cost reasons. If an uninsured subcontractor causes damage at a job site resulting in a loss, the general contractors insurance may end up paying a claim for the subcontractor’s negligence. Thus, when a general contractor engages the services of a subcontractor who has no insurance, the general contractor’s insurance company will usually make a premium charge for the uninsured subcontractor when they learn this at audit at the end of the year. The certificate, therefore, is an important document for preventing such a charge from landing on the general contractors insurance.
Additional Insureds
Certificates also convey other important information that may be present between working parties. One of the most common is what is known as the additional insured. The additional insured status is another step toward requiring subcontractors to assume full responsibility for their actions on a job site, and the certificate of insurance can confirm this particular status. Another common additional insured scenario is with landlords and tenants, or service providers such as landscapers.
Another policy feature that may be required when different businesses collaborate on a project, is the waiver of subrogation agreement. The certificate likewise provides a checkbox to acknowledge whether waiver of subrogation exists between parties.
Certificates are requested in many other business relationships. A landlord should require all tenants to have liability insurance so that a lawsuit from a tenant’s actions do not come back to the landlord. The certificate of insurance may be used to document compliance in this arrangement.
Another important insurance consideration disclosed on a certificate is relates to Worker’s Compensation insurance. In Massachusetts, business owners may opt out from having Worker’s Compensation coverage in order to eliminate the cost of including Worker’s Compensation for themselves. A certificate of insurance can disclose whether the owner has opted out or not.
Confirmation of Insurance
When a business such as a bank wants to confirm whether there is insurance on a business’s property, the certificate of liability insurance is not the correct document, but rather either an insurance binder, or the evidence of property insurance form. These look very similar to noninsurance people but there is an important distinction: These other forms typically do not address liability insurance.
Businesses that collect many certificates of insurance often organize these certificates by expiration date of their subcontractors insurance. Thus, they will know when the insurance of the subcontractor ends in order to know when to request a replacement certificate.
One important caveat: a certificate only shows insurance in place on a given day. There is no specific obligation by the insurer or by the agent or broker to notify a certificate holder if the subcontractor lets their insurance cancel. Generally speaking, when old claims make their way back to a general contractor, the subcontractors insurance often has expired.
Download a sample certificate where we have highlighted some of the more important aspects of this cryptic looking insurance form. Or see a whiteboard explanation and examples of how to read these and what to look for.

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