Certificates Not Always Certain

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.
By | 2012-08-07T07:56:32+00:00 August 7th, 2012|Risk Management and Assessment|2 Comments

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2 Comments

  1. Charles T. Wilson September 22, 2012 at 6:03 pm - Reply

    Thanks for the clarification – and for putting first things first, John! Working with the right people makes the rest so much easier. And having the right, equitable, contractual agreements is the way to go.

  2. John Schaefer August 7, 2012 at 12:02 pm - Reply

    As you point out this is much more than a decision about whether or not to collect certificates. The real process starts with minimizing risk by selecting good partners, managing them well and looking at overall contractual protection. Their insurance can be an important backstop and generally collecting proof of insurance (either through certificates or in extreme cases by getting copies of policies) is a very helpful part of what risk management can do to protect the company. For companies without full time risk professionals they should hire a consultant to review this. Even in-house legal departments are often not fully-versed in the details of this issue.

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