Certificates of Insurance and Additional Insured (AI) endorsements are usually a “best practice” whenever you hire subcontractors and certain suppliers and vendors. Many businesses don’t understand the pitfalls of getting this right.
Remember that insurance is the other side’s financial back-stop to indemnify you for losses due to their negligence or contractual responsibilities. Certificates and AI endorsements usually have no charge, but there may be an administrative fee.
Certificates are “proof” of insurance, but only on the date issued. Nothing prevents the policy from being cancelled or the stated limits exhausted by other claims. And you probably won’t be notified of either.
Additional Insured status means you can directly access their insurance coverage for a covered loss (restrictions and limitations will certainly apply), and your own coverage may not be involved at all. Any losses they are responsible for will go on their record, not yours.
Certificates of Insurance
- Request these from all sub-contractors, and many suppliers/vendors at all times.
- If possible, provide a Sample Certificate of your complete requirements so they can give it to their insurance provider and get it right the first time.
- Instructions should include limits, types of policy and special endorsements or coverages needed. Some of these can be complex – get help to get it right.
- Usually you will want:
- Commercial General Liability (CGL) – $1 mm limits; occurrence based; perhaps Broad Contractual coverage
- Auto Liability – $1 mm limits; non-owned & hired coverage
- Excess Liability (depending on the severity of the loss the third party could cause) – $3 mm to $5 mm limits
- Workers’ Compensation (if any employees) – state mandated statutory Workers’ Comp limits and $1 mm Employers Liability
- Errors & Omissions (possibly, depending on their work for you) – $1 mm (minimum) or more.
- If they refuse your request, they may have no or limited insurance protection!
- You can accept that, but it could mean that you are taking all the financial risk – even if they are negligent or otherwise responsible for a loss.
- Double check with your insurance professional (risk manager, broker) about your coverage – including independent contractors.
Additional Insured (AI)
- You should also request Additional Insured status under their CGL, Auto and Excess or Umbrella Liability. You must insist on an endorsement from their insurance company – not merely a notation on the Certificate.
- You can request this as well for their Errors & Omissions policy.
- You will need a “Waiver of Subrogation” for their Workers’ Compensation policy where usually there is no AI provided. This means their insurer can’t try to hold you liable for a worker’s injury. Again, get an endorsement.