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

Understanding Certificates of Insurance (COIs): What You Need to Know

A Certificate of Insurance (COI), often referred to as a cert or proof of insurance, is a standardized form used in the insurance industry to summarize the liability coverage an insured party has in place. This document, known formally as the ACORD 25, is issued by an insurance broker or agent to illustrate essential details of an insured’s policy for a certificate holder.

However, it’s crucial to understand what a Certificate of Insurance is—and what it is not.

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What Is a Certificate of Insurance?

A Certificate of Insurance provides proof that the policies listed on the form exist and specifies their coverage limits, effective dates, and the insurers providing the coverage. However, this proof is only valid at the moment the certificate is issued. Policies can be canceled, altered, or terminated shortly after the issuance of the certificate, making the document a snapshot in time rather than a guarantee of ongoing coverage.

The ACORD 25 form explicitly states this in its header:

• “This certificate is issued as a matter of information only and confers no rights upon the certificate holder.”
• “This certificate 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.”

This limiting language highlights that the certificate is merely a summary, not a detailed account of policy terms. Relying on a COI as if it were the policy itself can lead to misunderstandings and significant risks.

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Key Features of a Certificate of Insurance

1. Coverage Summary: The ACORD 25 illustrates liability coverages such as general liability, auto liability, umbrella or excess liability, and workers’ compensation. It does not typically include property insurance or other specialty coverages unless noted in the comments section.
2. Limits and Dates: The form specifies the coverage limits and policy periods for each listed policy.
3. Certificate Holder: The document identifies the party requesting proof of insurance—the certificate holder—but confers no legal rights or guarantees to them.

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Additional Insured (AI) Status: Common Misconceptions

One of the most contentious elements of a Certificate of Insurance is additional insured (AI) status. Certificate holders often request this status, but it’s vital to understand the nuances:

• Blanket AI Endorsements: Many small and mid-sized business insurance policies include a blanket AI endorsement, automatically granting AI status if a written contract requires it. Without such a contract, the certificate holder does not have AI status—even if it is indicated on the certificate.
• Specific Endorsements: Alternatively, AI status can be granted by explicitly naming the certificate holder through a specific endorsement on the policy. This often comes with an additional premium.
• Limitations of AI Status: Additional insured coverage typically only extends to liability arising from the named insured’s negligence. It does not replace the certificate holder’s need for their liability insurance and should not be viewed as comprehensive protection.

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Common Pitfalls and How to Avoid Them

1. Over-Reliance on Certificates: Some certificate holders mistakenly assume that a COI is as binding as the underlying policies. Always remember that the certificate is informational and not a contract.
2. Unrealistic Insurance Requirements: Often, insurance requirements in contracts are copied from outdated templates and may not align with the insured’s actual coverage. Before signing any agreement, consult with your broker to ensure compliance.
3. Unexpected Costs: Failure to review insurance requirements before bidding on a project can lead to costly surprises. For example, contractors in Manhattan frequently encounter $10 million umbrella coverage requirements, which can significantly impact project profitability if overlooked.

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Best Practices for Managing Certificates of Insurance

• Review Contracts: Always send contracts with insurance requirements to your broker for review before signing. This can save you from costly policy amendments later.
• Communicate Clearly: If you’re the certificate holder, ensure you understand what you’re asking for and why. Misaligned expectations can lead to unnecessary disputes.
• Work with a Skilled Broker: A knowledgeable broker can help navigate complex insurance requirements, ensuring your coverage aligns with contractual obligations and avoids gaps.

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Final Thoughts

Certificates of Insurance are essential tools for demonstrating proof of liability coverage, but they come with limitations. If you rely on another party’s insurance, consider requesting copies of the actual policies for a detailed understanding of the coverage.

Navigating certificates, additional insured status, and insurance requirements can be challenging. If you’re unsure about any aspect of a COI, reach out to an insurance expert. Still not feeling confident? It might be time to switch to a broker who can provide clarity and support.

Let’s chat—contact me today to ensure your insurance needs are fully met.