A Certificate of Insurance Falling Through the Cracks Can Cost Millions. How Do You Prevent That?

September 27, 2016

Even the most diligent risk management and certificate of insurance compliance teams are expected to make mistakes now and again. As an executive of an organization that works with subcontractors and 3rd party vendors on a frequent basis, you certainly understand this. That’s why like any good leader, you’ve implemented procedures to ensure greater control over your risk.

Despite being on top of all that comes with compliance and insurance, does doubt ever gnaw at you? Do you ever feel like there should be a way to better protect against human error when it comes to certificates of insurance and compliance?

What Happens When a Certificate of Insurance Falls Through the Cracks?

Does your current, when you get a certificate of insurance, process leave you and your team relying on a paper trail consisting of cobbled together systems and sticky notes? When it comes to the financial security of your business, you can’t afford to have a certificate fall through the cracks. Overlooking something as simple as an endorsement or an owner not covered on a workers’ comp policy could end up costing your company millions in litigation and an insurance claim, not to mention time lost and a wounded morale.

How Can a Certificate Fall Through the Cracks?

There are many scenarios that make it possible—even easy—for a certificate of insurance to fall through the cracks. Here are a few examples:

  • If a project is ongoing, certain items are required to be included in a policy. The subcontractor or 3rd party vendor has to maintain their insurance to remain compliant. What happens if they remove a line of coverage, reduce coverage, or the policy is cancelled or expires?
  • If a subcontractor or 3rd party vendor has more than one insurance agent for various types of coverage, there are many certificates and even more paperwork than normal to keep track of. It’s quite possible that one agent handles one portion of coverage and a different one manages yet another—many coverages may seem to overlap, but actually do not.
  • Often times when a subcontractor first starts a job, he or she has to increase their limits to comply with the agreement. While they give documentation the first time, they may decrease their coverage over time (even against their contractual obligations) to save money.
  • It’s common that 3rd party vendor owners or corporate officers are excluded from a worker’s compensation policy; which could result in an injury and a lawsuit if the owner or executives actually come to the job site.

    An Example of Insurance Certificate Management Process Gone Wrong

A recent article by Law360 entitled, “Can You Trust A Certificate of Insurance”, provides an example of what can happen when something in the insurance certificate management process falls through the cracks. The below is an excerpt from the article:

In Tribeca Broadway Associates v. Mount Vernon Fire Insurance Co., the New York Supreme Court Appellate Division addressed the question of whether an insurance company had a duty to defend and indemnify a property owner that was the recipient of a COI designating it an “additional insured.” In Tribeca, the insured was a contractor that had agreed, in its contract with the building owner, to maintain insurance in a specified amount that would indemnify the building owner for all liability arising from the contracted-for work. As required by the contract, the contractor’s broker provided the building owner with a COI that listed the owner as an additional insured.

Thereafter, the owner was sued in a personal injury action by an employee of the contractor. When the owner asked the contractor’s insurance carrier to confirm that the owner was an additional insured under the policy, the carrier refused. The owner then commenced a declaratory judgment action asserting that, among other things, the contractor’s insurance carrier was required to provide a defense in the personal injury action. In its cross motion, the carrier argued that the policy insured only the contractor, that the owner was not identified on the policy as either a named or additional insured, that the certificate had not been issued by the carrier but only by the contractor’s broker, and that the certificate clearly indicated that it did not extend coverage to the recipient. The trial court rejected these arguments, granting the owner’s motion for summary judgment and declaring that the carrier had a duty to defend.

On appeal, the Appellate Division concluded that the carrier had no duty to defend the owner in the personal injury action because the COI did not extend coverage to the owner as an additional insured. The court held that the COI did not constitute conclusive proof that a contract for coverage existed between the owner and the carrier. Furthermore, neither the contractor nor its broker could create rights and obligations as between the owner and the carrier. The Appellate Division concluded that because the certificate contained a statement that it was issued “as a matter of information only” and “does not amend, extend or alter coverage afforded by the policies below,” the language stating that the owner was an “additional insured” did not actually make the owner an additional insured. Tribeca, 774 N.Y.S. 2d at 199.

As you can see from the above case, the owner in this scenario wasn’t covered as originally thought, all due to an error in the certificate management process. The error, which took months to resolve, cost the organization significant sums of money, not to mention wasted time and negative attention.

A Better Solution For Managing COIs

It can be a lot of pressure for the person in charge of certificates of insurance. Shouldn’t you, as an executive, provide them with support they need to make sure the job gets done right? With the right software, you can not only make sure every certificate gets the attention it needs, you can save your team hours of work while significantly reducing risk to your company in the process.

myCOI is a cloud-based software solution and exists for one reason: to help you handle the task of certificate of insurance management and to protect your company against underinsured claims, costly litigation and failed audits. The software and insurance tracking services are combined into an easy-to-use solution developed and supported by a team of insurance professionals and is built on a foundation of insurance industry logic to automate the certificates of insurance communication process and ensure you remain protected.

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