Certificates of Insurance. What are they, how are they used, how are they abused.

Certificates of insurance, COIs, Proof of Insurance, Certs, and so forth are different names or terms we assign to an ACORD form known as the ACORD 25, Certificate of Liability Insurance.

In this video and post, I’m going to discuss what this form is, and what it’s not, coming right up.

Before I jump right into certificates of insurance, I want to let you know that if I don’t entirely answer your question that caused you to click on this video, then please reach out to me – email, phone call, how every you want.

I’m here to help you gain a better understanding of business insurance.

Okay, onto certificates of insurance.

A certificate of insurance is just proof that the policies illustrated on the document exist with their limits of coverage shown.

And that proof is only good at the moment the certificate is issued. The next moment, those policies could be altered or terminated.

The point I want to make is that you need to accept a certificate for what it is.

It is a very brief summary of the liability coverages the insured has in effect when the certificate is issued.

Often, certificate holders put too much faith or emphasis on a certificate and want to use it as if it were the actual policies of the insured.

The ACORD certificate illustrates the limits, coverage dates, and insurers affording coverage for up to 5 liability policies.

This one sheet summarizes about 400 to 500 pages of policy data that actually guide the terms of coverage.

Therefore don’t expect it to provide you with a lot of detail.

In fact, at the top of the Acord 25 form, it says: This certificate is issued as a matter of information only and confers no rights upon the certificate holder.

This certificate of insurance does not affirmatively or negatively amend, extend or alter the coverage afforded by the policies below.

This certificate does not constitute a contract between the issuing insurers, authorized representative, or producer and the certificate holder.

One major source of headaches related to certificates is the additional insured status certificate holders often want on a policy holder’s general liability policy.

And here’s the rub.

Many business insurance policies in the small and medium-sized business market include an endorsement called blanket additional insured which is great.

This endorsement automatically includes additional insured (or A.I.) status for anyone that requires that protection BY CONTRACT.

This way a contractor doesn’t need to add anyone to their policy by specific endorsement and incur a separate charge.

A certificate of insurance is issued and the box is checked or wording is added that the certificate holder is named as an additional insured.

Unfortunately, all too often, no one is asking if the certificate holder has a contract with the insured that requires A.I. Status.

If there’s no contract, then the certificate holder does NOT have A.I. Status on the insured’s general liability policy.

A proposal, a purchase order, or a handshake do not convey contractual obligations required by the automatic A.I. endorsement, so you’ve got to be careful here.

This is why many general contractors, certificate management firms, and large project owners want to be specifically named as additional insureds on a policy by endorsement.

Certificates can often be the source of headaches and I think much of that is due to the fact that the person or entity that’s asking for a certificate doesn’t fully understand what they want or why they want it.

One party is often copying insurance requirements from an old contract or something they found online and it doesn’t fit a policy holder’s actual policy forms.

This is why I recommend that before you sign a contract, a lease, or any other engagement document that has an insurance requirement you send me or your agent that section so we or they can determine if you have the right coverage in place to comply with the certificate requirements.

What happens if you don’t have everything that’s required?

Well, then you’re going to need to amend or endorse your policy to reflect the requirements and that can be expensive.

One example that we see frequently is umbrella limits, especially with contractors working in buildings in Manhattan.

It’s not uncommon to see umbrella requirements to be $10,000,000.

The problem here is that a contractor formulates their bid for a project, large or small, they submit it and it’s awarded.

They never looked at the insurance requirements and now they’ve got a huge additional premium which makes the bid unprofitable due to the added insurance costs.

Speak to your insurance broker and send them your bid package before you complete your bid to make sure you have the insurance you’re required to have and avoid unnecessary surprises.

This is what a skilled broker is there for, to help you before there is a problem.

Here’s the bottom line:

Certs are only a brief overview of coverages the insured has.

If you are relying on that insured’s coverages for your own security, you may want to see the actual policies to be assured of the quality of that protection.

Certificates should not be amended by agents.

This includes adding wording to the comments box that for example, a hold harmless is covered or something to that effect.

Additional insured status can be tricky – make sure if you’re the A.I. that you get the coverage you require and it’s not subject to a contract if no contract is in place.

Not sure you understand when you’re getting a cert?

Ask for help from your insurance expert – still not getting the warm fuzzy confidence you need?

Then it may be time to consider switching experts.

Give me a call or drop me an email and let’s chat.

Thanks!