The Dangers of Certificates of Insurance

The Dangers of Certificates of Insurance

If you are in the construction industry or hold yourself out to be a trade contractor you need to read this! In this post we’ll take you through the ins and outs of the certificate of insurance. You’ll learn just what a certificate can and cannot do and you’ll gain a better understanding how this sometimes worthless piece of paper seems to all by itself run the entire construction insurance industry! Let’s get started.

What is a Certificate of Insurance?

A certificate of insurance is written proof that certain insurance coverage, as shown on the certificate form, are current and active at the time and date the certificate is created. When someone asks for a certificate of insurance from you they want to verify that you have insurance coverage in place.

The Certificate of Liability Insurance is a form that was created by Acord. Acord is the Association for Cooperative Operations Research and Development. It is a non-profit, insurance industry owned organization tasked with establishing electronic data standards along with creating and maintaining standardized forms used within the entire insurance industry. The Acord 25 is the standardized Certificate of Insurance form.

The coverage categories listed on a certificate are:

  • General Liability
  • Automobile Liability
  • Umbrella Liability
  • Workers Compensation and Employers Liability

There are also a couple of blank blocks where your insurance agent can include certain special policies that you may have such as:

  • Contractors Pollution Coverage
  • Products Liability
  • Professional Liability
  • And more

There is another blank block on the form that is titled “Description of operations/ Locations / Vehicles” which may be used for special wording or notes concerning the insurance coverage provided.

Who will request a Certificate from you?

Certificates are a normal daily task for construction industry insurance clients. Contractors will need to send and receive certificates from others for just about every job they secure. If you are a hiring contractor and will hire subcontractors to work on your job, you should require every subcontractor to provide you with a valid certificate of insurance providing you the proof that they have the insurance in place that you, as the hiring contractor, require. If you are working as a subcontractor, then you will be asked to provide a valid certificate to the general contractor or project owner almost always before you can even get on the job site.

  • Hiring Contractors
  • General Contractor
  • Project Owner
  • And just about anyone who may have a need to know you have adequate insurance coverage for the job you’ve been hired to do!

The Dangers of a Certificate of Insurance

Since we established above what a certificate is, what it does and who will normally ask for one, it’s time to talk about the dangers that a certificate of insurance create.

As I mentioned above a valid certificate is proof that insurance coverage exists on the date and at the time the certificate is issued. You must also know that a certificate of insurance in no way can modify or change any insurance policy. Typical policy modifications that are requested to be shown on a certificate include:

  • Additional Insured Status
  • Waiver of Subrogation
  • 30 Day Cancellation
  • Products and Completed Operations
  • Primary and Non-Contributory Status

Each of these special requests represent a policy modification. In other words, the actual insurance policy must be changed to provide these additional coverage items for the party requesting the certificate. Just because the certificate says something about the coverage represented does not mean the policy has been changed. The only way to add these special requests are to endorse the actual insurance policy in question.

Remember, the certificate of insurance in no way modifies or changes the policy. Only a policy endorsement can do that.

Hiring contractors, general contractors and owner entities will often make requests for special wording on a certificate that cannot be included. These requests often have to do with other contractual issues and are confused with just what can be provided through an insurance policy. You’ll find they often request items that are not insurance related. For example many construction contracts will include some type of indemnity and hold harmless clause, they expect some recognition of such item on the certificate and they look towards the insurance policy to provide coverage. When in fact the policy will not respond.

It is not unusual to find those involved in preparing the verbiage to be included on a certificate do not understand that insurance coverage, as provided by the insurance policy, and their contractual obligation found in a construction contract, are two distinct things. Subcontractors will commonly sign a construction contract without understanding that the insurance policy they have will not provide coverage for all things as lined out in the construction contract they just signed.

Other areas of concern with a certificate of insurance are:

  • Requests for modification of the certificate terms;
  • Requests for changes in notification;
  • Requests for inclusion of non- covered verbiage.

Let’s review what we’ve learned:

  • A certificate of insurance is just a piece of paper that shows current insurance coverage;
  • It verifies coverage is in place at the day and time the certificate is issued;
  • It does not confer rights on the certificate holder;
  • It does not modify or change any insurance policy, only a policy endorsement can do that;
  • It is issued to the certificate holder only as a matter of information.

Hope this post helps you gain a better understanding of what a certificate  of insurance is, what it’s for and what it can and cannot do!

Thanks for reading!

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