The world of building can be a dangerous one. From falls to falling items to faulty equipment and more, construction is an industry where accidents are highly likely to occur.
That’s where insurance—and the need for proof of it—comes in.
In this article, we’re continuing through our Certificate of Insurance 101 blog series to provide information on COIs in the building, construction, and contracting industry. Read on to learn more.
What Does COI Mean in Contracting?
The term COI refers to an important insurance document: a certificate of insurance. It is issued by an insurance company and serves the purpose of verifying the existence of an active policy. Usually, no more than a single page, a COI provides a summary of someone’s coverage. Independent contractors may need to obtain a COI in order to work with certain clients, sign a lease, or even take out a loan. On the hiring side of things, to ensure that a contractor’s coverage is valid and meets your contractual obligations, you’ll request an official certificate of insurance for contractors that you want to work with.
What Must a Certificate of Insurance Include?
COIs are extremely helpful in maintaining compliance and ease in modern-day business relationships. That’s because they’re official documents—only able to be produced by the insurer providing a policy—and provide quick, meaningful details that hiring parties need to know. Here are the pieces of information a COI must include and the questions they can help you answer:
- Policyholder name. Who is being covered? Who is providing proof of their coverage?
- Insurance provider information. Which official agency or broker is providing this policy to the policyholder? Who certified this document?
- Policy specifics. What is the policy number associated with this coverage? What kind of coverage is it? How long is it active? When does it expire? How much does it cover?
- Certificate holder information. Who was this COI generated for? Who is it going to be delivered to? Who needs to know about this policyholder’s coverage?
Is a Certificate of Insurance the Same as a Card?
You can think of a certificate of insurance in a similar way to how you think about an insurance card, like the one you might have for car insurance in your glove compartment. Both serve as official proof of an insurance policy. Both list important details like insurance provider, policy number, and named insured. Both will act as a snapshot of an insurance policy at the time of its creation. So, even though both card and certificate will typically list an expiration date of the policy if it’s canceled or otherwise changed, they will still look official even though they’d technically then be void.
A COI, as a full-page document, has more room to go into details about a policy, whereas a card is more for use between providers or to have easy access to relevant contact information such as helplines. Another important difference is that a COI denotes someone (the person who receives the certificate) as the certificate holder, while an insurance card does not.
Is COI the Same as a Certificate of Liability?
Certificates of insurance exist to provide evidence of all kinds of insurance policies. In other words, a COI pertaining to a liability policy is the same thing as a certificate of liability. Since it’s a frequently requested document, people may use either term for this specific insurance certificate. Another name for this kind of COI is the ACORD liability insurance form or ACORD 25 certificate. ACORD is essentially the creator, organizer, and standardizer for insurance certificates, so when we mention an ACORD certificate of insurance, we mean a regular COI, but with a number attached, we can be specific to their numbering system. The ACORD 25 is one of the most commonly used insurance certificates and acts as the industry standard for certifying general liability coverage.
What Kind of Insurance Do You Need as a Vendor?
Across many different sectors, businesses expect their vendors, partners, suppliers, contractors, and other third-party service providers to carry insurance and prove that they do. While the kind of insurance being verified will vary from industry to industry, for building and construction, typically the kinds of insurance you may want your vendor to have include:
- General liability insurance. This is the most common policy held by contractors. It protects them from claims made by third parties of bodily injury, property damage, and other accidents that could arise from their work.
- Workers’ compensation insurance. Another common kind of insurance that vendors like contractors will carry is workers’ compensation insurance. This policy protects any employees working under a vendor (such as subcontractors) by covering lost wages and medical bills for their work-related injuries.
- Contractor environmental liability insurance. This policy, also often referred to as professional pollution insurance, is another kind of policy contractors may want or need to obtain. It protects against liability from damages or injury caused by pollutants involved in their construction.
Who Asks for a Certificate of Insurance?
We often hear that business relationships are built on trust. However, smart business owners will operate on both trust and fact. By asking all hired contractors and vendors to provide proof of their insurance coverage via a certificate of insurance, you are doing your due diligence both for your business and your hired worker. That is all to say that typically, the hiring party in a business partnership will make the request for proof of insurance, whereas the third-party worker will be the one providing their certificate of insurance to do so.
Let’s walk through a quick example. Say that one of your builder suppliers is a furniture crafter. Even if the building is far away from you and the furniture is just being delivered, you will want to obtain a certificate of insurance from the supplier for the furniture delivery. Regardless of whether your business carries multiple insurance policies, you’ll want to minimize your risk of claims against those policies by ensuring that your outside contractors have the coverage needed in case of an accident on your property. So, you should request proof of liability insurance from your furniture builder. This will ensure that, if upon delivery of the furniture, an item falls, breaks, and damages your walls, flooring, or anyone around, you will get reimbursed for the damage.
How Do I Generate a Certificate of Insurance?
Now that we have discussed the gravity of COIs in the building industry let’s go through how to get a certificate of insurance for vendors. This process will revolve around you, as the hiring party of a builder, contractor, vendor, etc., submitting a COI request through mail or email.
Here are the steps that are usually involved in generating a certificate of insurance:
- Explain, in writing, why you are requesting a certificate of insurance to verify a specific policyholder’s coverage.
- Indicate the policy that you need proof of, as well as any contractor or building COI requirements you may have, such as asking them to add an additional insured endorsement to their policy or asking them to produce a waiver of subrogation so that their insurance cannot come after yours for rightful compensation in the case of a claim. Also, make sure that your request aligns with the certificate of insurance requirements for your state.
- Give them your contact information. This is necessary for the insurance company to have since you will be listed on the actual document as the certificate holder.
- Keep a copy of the COI request for your records. If future claims come up, you’ll have proof that you did your duty of attempting to verify your third parties’ insurance.
Once you’ve submitted your request, the certificate of insurance process continues with the policyholder as such:
- The contractor or vendor will acknowledge the request and provide it to their insurance provider either online or in person.
- Their insurance provider will ensure that their current coverage meets your requirements or modify the policy in order to do so.
- They’ll issue the COI to the policyholder, who will then deliver it to you as soon as possible.
Finally, the COI management process starts, not ends, with receiving the document. Once you have the certificate in hand, your business should do the following:
- Verify the document to ensure that it is correct, valid, and meets your outlined requirements.
- Keep the COI for your business’s records. We suggest doing this for at least five years.
- Continue to watch over the policy, ensuring that you stay on top of any changes that the policyholder makes to it (which you will be notified of) and being sure to remind them to renew their coverage when it gets close to lapsing.
- Consider getting assistance with your COI management needs. COI software exists to help streamline the verification, organization, and maintenance of these important documents. If you feel like you’re falling behind with your COI management or overall compliant efforts, give us a call—no strings attached.
What Does COI Mean in Construction Insurance?
In this blog, we’ve covered many important topics related to insurance in the building industry, including types of insurance contractors may be expected to have, how they provide evidence of their active policies, and how you, as a hiring business, can protect yourself and your vendors through COIs. At the end of the day, a COI in construction means that your business can move forward with your building or renovation project with peace of mind, knowing that all contracted parties are protected with coverage, meaning that claims are less likely to fall your way.
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