Understanding Certificates of Insurance: Proper Coverage of the Parties You Deal With Can Make or Break Your Business

Written by: David K. Moynihan

Published in BayState Builder, October 2011

This could happen to you. You are a month into a large renovation project for a homeowner when one of your long-time subcontractors breaks a water line causing significant property damage. Your subcontractor provided a certificate of insurance (“COI”), prior to starting work. You notify your insurance agent of the damage and assume the subcontractor’s carrier will cover the loss. A couple of days later your insurance agent calls and says that the subcontractor’s insurance carrier did not add you as an additional insured. Even worse, the sub’s insurance policy lapsed due to non-payment a week earlier. Your agent says that your carrier will now be settling the loss with the homeowner and probably will seek recovery from the subcontractor through its subrogation rights under your policy.

 Since the loss is now part of your firm’s claim history, your agent says it may increase your insurance premiums when your policy renews.  More disturbing, your insurer may elect not to renew coverage depending on the amount of the loss.

 You review the COI and note that your firm was listed as the certificate holder.  You also note that the COI says that you were to receive notice in the event of cancellation or expiration of the subcontractor’s policy. You are confused and want answers from your insurance agent.  This brief article will help explain the basics of what a COI is and is not.

A certificate of insurance is not an insurance policy. It is a document that provides specific information regarding one or more insurance policies in place at the time of issuance of the COI.

 A COI is often requested in situations where liability and large losses are a concern.  For instance, building owners request COI from tenants to cover fire losses and personal injury claims.  A homeowner requests a COI from a contractor performing home renovations.  General contractors require them of subcontractors working on their behalf. Lenders require them to protect the collateral secured by a construction loan.  And engineers and architects are often required to evidence that they have error and omissions coverage.  These are just some of the reasons for requesting a COI.

 Properly completed, a COI will list the following:

• "Producer":  The person or entity that issued the COI, usually the insurance agent.
• Insured:  The party who is insured by the policy.
• Insurer(s):  It must list the insurer(s) providing coverage since not all coverage may be issued by one carrier.
• Type of Insurance:  General Liability; Automobile; Garage Liability; Excess/Umbrella Liability; Workers' Compensation and Employers' Liability; and Other (used for professional or environmental liability coverages).
• Policy Number:  Check for a policy number which evidences issuance of the policy.
• Policy Effective Date:  Check to see that the policy is effective.
• Policy Expiration Date:  Check to see that the proposed work does not extend beyond the expiration date.
• Limits of Coverage:  Check to see that limits are sufficient for the requested coverages in the contract.
• Description of Operations/Locations/Vehicles/Exclusions Added by Endorsement:  This section is "manuscripted" by the Provider of the COI to describe specific requests, such as adding an additional insured.
• Certificate Holder:  This the party to whom the COI is issued.
• Cancellation:  See new text of ACORD form that removed notice of cancellation or expiration.  If notice of cancellation or expiration is required by a contractual provision, the Producer should add appropriate language to the COI.

 While there is a no standard form COI, the predominant form is one of the dozens designed and copywritten by ACORD Corporation.  ACORD designs forms for specific insurance risks and files them with State Insurance Departments.  Once approved, the ACORD form may be issued by any insurance agent or broker authorized by ACORD Corporation.

 ACORD Corporation continually revises its forms so one must be careful when requesting a specific edition as it may no longer be in effect.  An insurance agent should be alert to form revisions.

 It is important to know that even though you are listed as a crtificate holder, you may not be covered by the policy.  For example, the ACORD form states that the"…certificate…confers no rights upon the certificate holder."  It is simply a document to show that there was coverage at the time the COI was issued.

 To be covered, you must be added as an additional insured to the policy by rider or amendment.  Without the policy rider or amendment, the COI will not extend coverage to you.  Since ACORD has designed numerous forms for specific industries and risks, it is important to review the specific form as they often contain policy exclusions or other coverage limitations.

 The ACORD forms contain an Additional Insured Column that the Producer will check to show if you have been added to the policy.  In addition, the ACORD form has a box entitled "Description of Operations/Locations/Vehicles/Exclusion by Endorsement/Special Provisions."  Here, the agent should insert the required language (referenced to as "manuscripting") to add you as an additional insured.  Often the Certificate Holder and additional insured are the same party. 

 Regardless of the language in the Description of Operations section, the limits, exclusions and other portions of the underlying policy will not change.  The COI is only evidence of coverage held by the policyholder as of the date of issuance. 

ACORD’s Revised Notice of Cancellation or Expiration

 ACORD recently revised its forms regarding notice of cancellation.  The old text allowed the agent to insert the number of days prior to cancellation or expiration of a policy, such as 30 days.  While the statement gave a sense of comfort, the old text stated that the "issuing insurer will endeavor to mail 30 days written notice…but failure to do so shall impose no obligation or liability…". 

 Since late 2009, the new ACORD form text states:

"Should any of the above described policies be cancelled before the expiration date thereof, notice will be delivered in accordance with the policy provisions."

 The new text removes written notice of cancellation or expiration and refers specifically to the policy.  Unless you are provided with a copy of the policy, you cannot be sure that you will receive written notice of cancellation or expiration from the insurer.  If notice of cancellation or expiration is a contractual obligation (typical in construction contracts), the Producer will have to "manuscript" a notice clause in the Description of Operations section of the COI.  Otherwise, you will have to check with the Producer to ensure that coverage has not been cancelled for non-payment.

 If you have any questions on the COI form, you should check with your risk manager, insurance advisor or agent.  Most questions can be answered quickly.  Getting a properly issued COI in accordance with contractual obligations should afford the protection the parties negotiated.  Failure to issue the proper COI may shift liability contrary to what the parties intended and result in potential claims and unintended costs.

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