Let’s review: an insurance policy is a contract between the insurer and the policyholder. This contract outlines the responsibilities of both parties and details what the policy will cover in the event of a loss or claim. An insured is someone who has purchased coverage from an insurer, but there are different types of insured individuals that you need to be aware of when you are buying an insurance policy.
An “insured” is someone who has purchased coverage from an insurer. In most cases, this is a person or business that can make a claim on their policy if they have suffered some sort of loss as a result of something covered by their policy. Adding an additional insured to your insurance policy means giving permission to another party to make a claim on your policy in the event they suffer property damage or personal injury as a result of something covered by your policy. They aren’t a purchaser, but rather, they are covered under a policy someone else purchases. In most cases, this is usually done by subcontractors or vendors and is done to protect you as a property or business owner as required by contract or agreement.
What is an Insurance Certificate Holder?
An insurance certificate holder in most cases is the general contractor, business owner, or building owner who is hiring labor out to subcontractors or vendors. This person or business is not an insured unless they are named an additional insured on the sub’s or vendor’s insurance; this is where people can get into trouble if they don’t know what to look for and what pitfalls await. You, as the hiring party, do not receive any coverage under the policy.
The certificate holder has no right to make a claim against the policy or receive any money as a result of a claim made. Without parsing words, they are quite literally just physically (or digitally) holding the certificate of insurance (COI) that shows their contractors and vendors have insurance to cover themselves.
What is an Additional Insured?
An additional insured is another person or business whose name appears on the policy along with the policyholder. They are added as a named insured to the policy. This means they receive coverage under the policy along with the policyholder. They are not responsible for paying the policy’s premium. The policyholder is responsible for paying the full amount of the premium listed on the policy. This extended benefit is given to the hiring party in most cases and it affords them coverage for claims or losses made.
If a loss or claim is made against the policy, the additional insured is notified. They also receive a copy of the claim made. They have the same rights as the policyholder to file a claim and receive payment for any property damage or personal injury that has occurred as a result of a loss or claim. They are not responsible for any costs that result from a loss or claim made against the policy. As such, this is considered upstream coverage—the hiring party doesn’t have to purchase additional insurance for their subs or vendors. The onus falls on the hired party.
Differences Between an Insurance Certificate Holder and an Additional Insured
The most significant difference between a certificate of insurance holder and an additional insured is who is responsible for the policy’s premium and, consequently, who is responsible should a claim happen. The policyholder is responsible for paying the full amount of the premium listed on the policy if they add an insurance certificate holder as an additional insured to their policy. This also means they, the party holding the insurance, are responsible for incurred damages per their insurance policy. This protects the property owner or general contractor from liability.
The additional insured is responsible for paying none of the premium listed on the policy. The other main difference is who receives copies of claims made against the policy. An insurance certificate holder receives a copy of every claim made against the policy. They also receive a copy of any correspondence between the insurer and the policyholder. An additional insured receives only a copy of the claims made against the policy in which they are named.
Picture this: you’ve hired a team of subcontractors to build a new fast-food restaurant. Your carpenter drops a beam and injures one of the other subcontractors’ workers. The party at fault has named you as an additional insured, so you are covered and have no liability. If they hadn’t named you, you would be on the hook for any damages.
When to Add an Additional Insured to Your Policy
If you are buying a new policy or operating at a new site under a new contractor, adding them (the new site owner or contractor) as an additional insured to your policy protects you from any future claims as specified for the time on the COI. You might also add an additional insured to your policy if you are buying commercial property insurance. If the people who own the property where your business operates are insured under a policy that covers the property, adding both of them as additional insureds to your insurance policy will protect you from any losses that occur as a result of a claim made under the property policy.
The bottom line is if you are having anyone work on your property as a contractor, tenant, or as a vendor, they need to name you as an additional insured on their insurance policy AND you need to verify that on the COI they give you BEFORE they do any work whatsoever. Best practices in this area maintain that you verify this coverage with the sub’s or vendor’s insurance agent. Fraud does happen. It’s in your best interest to verify coverage before the work starts.
The Bottom Line?
Holding a certificate of insurance means nothing if you, as the owner or general contractor, aren’t named as the additional insured. You should be both the holder and the additional insured. Holding the COI allows you to verify coverage and make sure your subs and vendors are above board. Being named as the additional insured matters the most, but if you don’t have the COI to verify that, there’s not much of a point.
Where things get harder is when you’re tracking a stack of COIs on the daily. It’s untenable. Honestly, it can be maddening. One oversight could cost big time. So how do you protect your business?
Automate your COI tracking process. There’s no better way to make sure your compliance component with all of your subs and vendors is where it needs to be than partnering with a cloud-based provider of COI tools.
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