You serve as an executive at a construction or heavy manufacturing firm. You rely on your insurance policies to protect the company and its employees. As for the subcontractors and other third parties working on the job, do you trust their policies to cover your company against property damage and bodily injury claims as well? Whether or not your firm is a “certificate holder” or an “additional insured” determines if that trust is warranted. There is a big difference between the two – a difference that could leave you holding the bill for a claim caused by someone else.
Policyholder Vs. Certificate Holder Vs. Additional Insured
Understanding insurance starts with knowing who a policy covers. Recognizing the distinctions between these three terms helps to better identify who owns the risk.
Policyholder: This is the entity who purchased the insurance policy and the direct beneficiary of the coverage. They also are known as the “named insured.” A general liability insurance policyholder, for example, pays premiums for coverage in the event of bodily injury, property damage, and advertising or personal injury associated with work on a project.
Certificate Holder: Policyholders have their agents issue certificates of insurance (COIs) to the entity that hired the named insured to do work. This could be a subcontractor issuing a COI to the general contractor for example. The certificate of insurance names the general contractor as the certificate holder, which means they are the entity receiving the document. A COI is simply proof of insurance at that point in time. It provides general details about the policyholder’s coverage but does not modify the policy in any way. It is simply the subcontractor’s way of saying, “I have insurance.”
Additional Insured: In construction, contracts commonly require policyholders to extend their insurance coverage to other entities. Any party that benefits from this coverage is an additional insured. The subcontractor could have the general contractor added to its policy as an additional insured, which provides both parties with the same coverage under the same policy. When the certificate holder also is an additional insured, this is indicated on the certificate of insurance.
Want to know more about additional insured endorsements and making the most of this risk mitigation strategy? Download Additional Insured Endorsements 101.
How Do the Differences Impact Insurance Coverage?
Construction Business Owner (CBO) sums things up by stating, “although a certificate of insurance may identify a particular party as a certificate holder, a certificate holder is not the same thing as being named as an additional insured.”
CBO further explains the limitations of certificates of insurance for certificate holders:
Certificates provide evidence that certain insurance policies are in place on the date the certificate is issued, and that these policies have the limits and policy periods shown. However, certificates do not guarantee that limits will not be exhausted by other claims to which that insurance may also apply, that endorsements will be attached to the policy as required or that policy coverage has been changed with restrictive endorsements. The language on the commonly used certificate of insurance (often an ACORD form) clearly indicates that, ‘This certificate is issued as a matter of information only and confers no rights upon the certificate holder. This certificate does not amend, extend or alter the coverage afforded by the policies below.
Should a Company be a Certificate Holder and an Additional Insured?
Absolutely! To make things as simple as possible, the certificate of insurance serves as the named insured’s proof of coverage for the certificate holder. The additional insured endorsement extends that insurance coverage to the certificate holder.
This highlights the really important difference for keeping your company safe as that construction firm owner. A listing as the certificate holder provides a COI that shows the subcontractor is covered. Verifying this by tracking certificates of insurance is important because if a subcontractor is uninsured or underinsured and causes a loss, your company likely will be forced to pay the claim. Amending the coverage to become an additional insured means the subcontractor’s policy also has your company covered. Should they cause a loss, their insurance policy will be first to pay for the claim. For maximum protection, companies should require a certificate of insurance from every third party and that they always be named as an additional insured.
How Can You Protect Your Company?
If your company works with hundreds or thousands of third parties, manually tracking certificates of insurance and additional insured endorsements is inefficient and likely ineffective. Too many details can fall through the cracks. myCOI exists for one reason: to help you handle the everyday tasks of managing COIs and protecting your company against underinsured claims, costly litigation, and failed audits. The software is an easy-to-use, cloud-based solution developed and supported by a team of insurance professionals. The platform is built on a foundation of insurance industry logic to automate the COI communication process and ensure you remain protected.