Have you ever been asked to provide or review a Certificate of Insurance? If not, chances are you will. A growing number of business agreements have mandatory insurance requirements, including those involving landlords, contractors, subcontractors, manufacturers, suppliers, vendors and service providers, to name a few. Certificates of Insurance are used when these businesses need to prove or confirm the existence of satisfactory insurance coverage.
A Certificate of Insurance provides a superficial snapshot of insurance coverage that an insured has in place as of the date it is issued. The Certificate Holder is the person or entity requesting the Certificate of Insurance to verify insurance coverage. Though common and relatively straightforward, there is quite a bit of confusion about what Certificates of Insurance do, and more importantly, do not do.
Contrary to what many believe, a Certificate of Insurance:
- Is NOT an insurance policy.
- Does NOT provide the Certificate Holder with any rights under the insured’s policies. Being identified in the Certificate of Insurance doesn’t mean the Certificate Holder has the right to file a claim, demand coverage or request a defense under the insured’s policy.
- Does NOT amend, extend or alter the coverage provided by the insured’s policies. This can only be accomplished with an endorsement, rider or amendment to the policy.
- Does NOT create a contract between the insurance company and the Certificate Holder.
- Does NOT guarantee that insurance coverages listed on a Certificate of Insurance will continue in the future. A Certificate of Insurance issued today may not be accurate tomorrow.
- Is provided for informational purposes ONLY.
Though there are different kinds of Certificates of Insurance, those developed by ACORD (Association for Cooperative Operations Research and Development) are widely used and relied upon to provide specific information about insurance coverage, such as:
- The insurance companies issuing the policies;
- Policy numbers;
- Effective dates;
- Types of insurance (ex. general liability, automobile, property, workers’ compensation);
- Coverages and limits;
- Additional insured status; and
- Subrogation waivers.
These forms also have a space to add a description of operations, locations and vehicles. Despite being intended for brief explanatory remarks, this space is often used to add specific wording about whom and what is covered by the insurance policies identified in the Certificate of Insurance. This practice can create serious problems.
For example, a Certificate Holder may want their Certificate of Insurance to expressly state that it is an additional insured under the policy, that any and all damages shall be paid by the insured’s policy, or that any obligation by the insured to indemnify the Certificate Holder is covered by the policy. It’s important to understand that adding these statements to a Certificate of Insurance does not make them true.
Remember that Certificates of Insurance do not affect, extend or change insurance coverage. The policy dictates the scope of insurance coverage, including who is considered an additional insured and which claims are covered. Not the Certificate of Insurance. Broad, incorrect or contradictory statements are essentially meaningless to an insurance company.
The same cannot be said for businesses that use Certificates of Insurance to prove or confirm the existence of insurance coverage. Certificate Holders must look beyond the illusion of coverage created by sweeping statements in a Certificate of Insurance and confirm the coverage that actually exists. Those providing Certificates of Insurance must avoid statements that could be considered misleading or fraudulent.
Unfortunately, costly coverage gaps and lawsuits often occur when Certificates of Insurance are misunderstood and misused. These may be avoided by working with an experienced insurance agent when issuing or receiving Certificates of Insurance.
Please contact us to discuss how Setnor Byer Insurance & Risk can help your business manage Certificates of Insurance.
Additional information is also available in our weekly Risk Management Newsletters.