Certificates of Insurance – What They Don’t Tell You!

Certificates of Insurance – What They Don’t Tell You!

August 2nd, 2023 – by Eric Lonsinger

First, a quick disclaimer. The following is not meant to be guidance for any specific situation. It is intended for informational purposes only and not for the purpose of providing professional or legal advice. You should contact your licensed professional to obtain advice with respect to any particular issue or problem.

This article discusses a few common issues related to requesting and reviewing certificates of liability insurance. It is primarily geared for the requester, that is the person or business requesting a certificate from another person or business. The goal is to help you, the reader, to identify potential red flags with a certificate by understanding how they are structured and what they convey. If you are required to provide certificates to a customer or hiring company, then this content will also help you understand why certain requirements exist and how best to address them.

The Basics

While this is not meant to be a detailed overview of certificates of insurance (COIs) we do need to lay a little groundwork to ensure we’re all on the same page.

Generally, when people refer to a certificate of insurance (COI) they are referring to a standard 1-page document summarizing the insurance a person or business has at the point in time when the certificate was issued, most often pertaining to liability policies. The 1-page form in question is technically named the “Acord 25”.

Certificates are generally issued by a broker, agent or even an insurance company and list out the various policies the Insured has, along with the policy terms and the limits they carry. Pretty straightforward right? Well, there’s a lot to digest here and more importantly, beyond the information listed on the certificate itself, it’s crucial to understand what certificates don’t tell you.

Let’s start with the easy stuff. It should go without saying, but if you’re asking someone to provide a certificate, it’s generally because you want proof that they have insurance prior to doing work for you. If something should go wrong, for example your building is damaged or worse, someone is hurt, you want know they have the proper coverage in place to respond.

The two most common scenarios where we see certificates being requested are:

In both cases, the hiring party has a vested interest in making sure the person or business being hired has sufficient insurance coverage. If their or a 3rd party’s property is damaged during the work, then they will want to know there is coverage to pay for the damages and likewise in the event a 3rd party is injured.

Here’s an example – a General Contractor (ABC Repair) hired a subcontractor (Bob’s Bricks) to renovate the exterior of a commercial building. While Bob was on an aerial lift working on the siding, he accidentally turned the lift too far and put a hole in the wall damaging the building, the interior and some equipment. Bob will put in a claim on his General Liability policy to pay for the repairs.

In this example, when ABC Repair hired Bob, they should have asked him to provide a COI (scenario 1) outlining his insurance to make sure Bob had coverage for an accident like this. The owner of the commercial building likely requested a COI (scenario 2) from ABC Repair as well and ABC Repair’s General Liability policy most likely requires any subcontractor they hire to carry their own coverage too.

The Smell Test

Now that we have a basic understanding of what certificates are and why people ask for them let’s talk about the “smell test”. This is not an official test in any way, shape, or form. This is simply a quick and easy way to check if a certificate is valid or not.

To pass the smell test you should check these three items:

Frist, make sure the name in the Insured block is the same name as the business you are hiring, it’s also a good idea to have a contract in place but that’s a topic for another day.

Second, check the policy periods and make sure they are not expired. Also check the certificate date on the top right to ensure it’s current.

Third, look at the certificate holder and make sure you see your name there.

It’s not uncommon for people to send out old certificates they may have lying around, but those old certificates may not represent the current state of their insurance coverage and certainly do not convey the protections you are likely looking for. The correct way to do it is to issue a new certificate each time it is requested and list the requestor as the certificate holder and if this is done, then the three items above will line up

It’s also worth stressing that a certificate is only a snapshot of coverage at a single point in time. A policy could be cancelled the day after you receive a certificate, the takeaway here is that a certificate is not a guarantee of coverage.

You’re Not Out of the Woods Yet

Assuming the COI passed the smell test, you will now want to look a little closer. Ideally, you will perform this review with your insurance agent. At Ford, we routinely review certificates with our clients because, as you guessed it, an insurance professional should know what to look for, especially given the context of the environment. This last point is important, and we’ll see why below.

At this point you now know that the person providing the certificate has insurance, but do they have the right insurance? This is the tougher and much more important question.

Not all insurance policies are created equal. Have you ever actually read through your insurance policy? Many policies are well over 50 pages and are not typically exciting reads, at least for normal human beings. For fun, look at the declaration page of your liability policy. It will list all of the forms and endorsements included on that policy.

Read through those titles and you will find some interesting ones with words like “exclusion”, “designated”, “limited” and “restricted”.

These forms contain the language which dictates what is covered, and perhaps more importantly, not covered by that policy.

Now go back to the certificate – do you see that information anywhere? Probably not.

To be fair, some agents will include details in the description of operations field outlining important policy information, like these exclusions. Better yet, they’ll include the actual endorsements as attachments to the certificate, but, in practice, that’s not always the case and it varies from agent to agent.

Starting to see the problem? If I’m hiring a contractor to install a brick façade on a 50-foot-tall building but, their policy has a height limitation of 35ft, that’s an issue. If the whole point of requesting a certificate is to make sure there’s coverage, failing to pay attention to the details doesn’t do us any good.

Generally speaking, if a certificate is 2 or more pages that could mean the issuing agent believes it’s important to provide policy details that you should be paying attention to. If there’s nothing, well they may just be lazy, and you’ll want to ask for the detail anyway. Either way, the best thing to do is get your insurance professional involved to help.

Additional Insured, Waiver Of Subrogation and Primary and Non-Contributory

Additional Insured, Waiver of Subrogation and Primary Non-contributory are typically asked for together, but what are they? and should you be asking for them? The short answer is, probably yes.

You’ll notice checkboxes on the certificate for additional insured and waiver of subrogation. These indicate if the policy in question can provide this status to you, but what are they? Let’s quickly touch on each.

Additional insured status extends coverage to other entities beyond the named insured on the policy in the event it is required.

Going back to our example: Let’s assume that instead of breaking a window, our sub-contractor Bob accidentally dropped a brick that hit somebody walking by and severely injured that person. What could potentially happen here is the injured person may hire a lawyer who may take a shotgun approach and sue everybody who had anything to do with the project: the building owner, the general contractor, the sub-contractor, maybe even the architect or engineer. If you as the General Contractor are listed as an additional insured on the sub-contractor’s policy then the sub’s insurance will be the first to respond and pay for legal defense and damages up to the policy limits, assuming there is coverage – again refer back to above paragraphs, if that work was excluded then this doesn’t matter because there’s no coverage anyway.

Waiver of subrogation. Subrogation is the process in which the insurance company that paid money out will look to see if they can recover some or all of that money from other entities. For example, they may claim that you, as the General Contractor, took actions that could have made you partially or even fully responsible for what happened and then go after you and your insurance company to pick up the tab. By getting waiver of subrogation the insurance company is stating that they waive their right to do this. This is essentially another layer of protection for you.

Primary and Non-Contributory is a clause that essentially states that this policy will respond as the primary insurance and not seek other insurance to contribute but, if the loss exceeds the policy limit, then your policy may kick in.

These three endorsements together provide additional layers of protection for you. This is especially important because you do not have direct control over the way a contractor or subcontractor performs their work. If they cause an accident, these clauses will help shield you from the resulting losses and loss history on your policy.

But Wait, There’s More!

Here’s the kicker: Just because the boxes are checked on the certificate does not necessarily mean you are good to go. In most cases this simply means this coverage is available but for it to apply you either need to be specifically named on the policy\endorsement or frequently, the language in the policy states that these statuses will be provided when required by written contract. When in doubt work with your insurance professional!

There are two takeaways to end with:

First – remember why you are requesting a certificate to begin with. It shouldn’t simply be to check a box, it’s a step you are taking to make sure you and your business are protected so treat it as such.

Second – Read the certificate carefully with an aim to clearly understand if it provides the coverage you’re looking for and if there is any question make sure you follow up on it and don’t be afraid to include your agent in the communication.

Insurance certificates can be confusing and are often overlooked or dismissed without much thought. Savvy businesses pay attention to the details and by doing so help create an environment where they operate with multiple levels of protection. A robust request and review process is an essential part of a comprehensive risk management strategy.