In one of our latest posts entitled, “Why Bother Getting a COI For Each New Subcontractor or 3rd Party Contract?” we discuss why it’s important to secure a Certificate of Insurance (COI) for each vendor that does work for your organization. The post explains that COIs are designed to prove status of insurance including items like coverage amounts, in order to limit the liability to your organization and are therefore important to collect every time.
For instance, what happens when an accident occurs on the job site or at a facility where your organization might be liable by association? Insurance carriers will do everything they can to defer costs to another party. If your organization doesn’t have the right coverage on file, then it’s possible you could end up with the claim or that an accident could, at the very least, cost your organization a significant amount of money in litigation costs, not to mention a major distraction of staff.
What will the Insurer look for when an accident happens?
In this post, we’ll examine the claim review process and risks associated with not having a Certificate of Insurance on file, along with why it could cause significant risk as the adjustor begins researching the claim. In this example, we’ll illustrate a liability claim, which we’ll reference throughout:
A recent article in IRMI entitled Adjusting Liability Claims, states that “The investigation of a liability insurance claim fulfills the promise made by the insurer at the time the policy was sold. The adjuster is an investigator, an insurance contract expert, and a person of empathy who fulfills the promises made in the policy to defend and indemnify the insured. In doing so, the adjuster also protects the assets of the insurer so that only the claims owed are paid. The adjustment of a liability claim commences with the loss notice.”
When an “occurrence” happens, which is defined by III.org as: “an accident, including continuous or repeated exposure to substantially the same harmful conditions” one of the first things that a claims adjuster would look at is the “existence” of the policy. The adjuster determines whether or not there was or is a policy in effect at the time of the loss that would extend coverage for the occurrence.
The Risk: If an organization is not keeping track of COIs in an efficient and organized manner, then the organization may miss some “gaps” in coverage due to a policy on the certificates expiring and not obtaining one for the renewal, or due to a cancellation of a policy – either due to non-payment or other reasons.
Next, adjusters will read the actual policy and will look for specific items such as who is covered, the Named Insured, Additional Insureds, etc. They will also look at what the organization has coverage for, such as additional insured status, ongoing vs. completed operations, primary and non-contributory language and so on.
The Risk: If an organization isn’t specifically reviewing how each item is entered onto the COI and the endorsements, then the organization may not be covered in the way that they originally intended. It’s incredibly important to see the endorsements for yourself and verify that both “ongoing operations” (coverage while work is taking place) and “completed operations” (coverage when work is completed) status are included in the endorsement.
Once the Insurer has determined that there is coverage in place and that it applies to the parties in question, the Insurer will pay on behalf of the Insured parties if the claim is proven to be valid. One would think that would be the end of the claim, but only with the existence of a Waiver of Subrogation endorsement. If the Insurer has paid out and they feel there is another party that is also liable, they will pursue “subrogation”. Subrogation is defined as “the substitution of one person or group by another in respect of a debt or insurance claim, accompanied by the transfer of any associated rights and duties against that party in order to recoup monies paid.”
The Risk: If an entity has requested a Waiver of Subrogation in their contracts and agreements, but never confirmed that one was added to the policy in their favor, they will be exposed to a possible action from the insurer for recovery of funds paid for the claim in question. Once again, this is why it’s incredibly important to always collect and review endorsements.
Additionally, if the contract isn’t finalized and the policy doesn’t cover the claim, then a claim that should have gone onto your vendor’s policy could end up being paid by your own insurance policy, which can also lead to increased premiums for many years.
The Risk: When a claim for liability comes up, the first party that’s looked at is the one with the deepest pockets, which is also a consideration in WHO is named in the lawsuit. The aftermath could lead to a costly lawsuit, a major distraction of staff, and increased premiums down the road.
Ensure Your Organization is Protected
myCOI is a cloud-based software solution and exists for one reason: to help you handle the everyday tasks of managing certificates of insurance and protecting 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 COI communication process and ensure you remain protected.