Why a Certificate of Insurance Is Not Enough (and What To Do About It)

June 28, 2022

Compliance managers and administrators have many tasks on the to-do list other than collecting certificates of insurance (COI) for every vendor and contractor—which itself can feel like a full-time job. Finding additional time to review insurance policies and endorsements is difficult, but extremely important. They say, “the devil is in the details” and when it comes to COIs, that is true. Simply scanning a COI for a set of checked boxes opens a company up to significant risk. Taking the extra step of scrutinizing each COI’s details and validating its accuracy can save a company millions of dollars in preventable losses. Following are five key ways to look beyond the COI for risk mitigation.

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1. Additional Insured Endorsements

Next to “Type of Insurance” on the COI is a box titled “Addl Insr.” When marked, this indicates that the certificate holder has been named as an additional insured. The additional insured endorsement provides the certificate holder with insurance coverage under the named insured’s liability policy. This largely prevents third parties from seeking financial contribution from the additional insured when a claim occurs. Additional insureds also can file claims for which they are not completely at fault under the named insured’s policy.

Additional insured endorsements are great for transferring risk—but only if active and accurate. First, request a copy of the insurance policy and endorsement. Verify the policy’s activation and expiration dates. Next, check the additional insured’s information. A misspelled name or bad address can nullify the endorsement. If the contract requires it, ensure the endorsement covers completed operations. This extends the policy to cover negligence and faulty work discovered after a contractor’s work ends.

2. Waiver of Subrogation

A checked “Subr Wvd” on the COI indicates that a waiver of subrogation exists. Insurance companies use subrogation as a strategy to recoup money paid toward a claim by legally pursuing payment from another party affiliated with the loss. A waiver of subrogation prevents a contractor’s insurer or other lower tier party from seeking reimbursement on a settled claim from the certificate holder. Review the insurance policy to ensure the waiver of subrogation exists and lists no exclusions that could harm the additional insured.

3. General Aggregate Limits

The “Limits” section of the COI includes a field for “General Aggregate.” CGL insurance policies carry liability limits, which means that during the term of coverage, the insurance will pay only up to a certain amount. Once the policy reaches that threshold, its financial resources are exhausted. The COI includes three boxes for how the general aggregate applies.

“Policy” indicates that the limits apply to the insurance policy in total. A mark on this box should raise questions about a contractor’s active projects and losses already applied to the limit. Should a contractor cause losses on jobs for different companies, all claims go against the general aggregate. That means companies filing claims after the aggregate is reached likely will not receive payment.

“Location” applies only to the properties owned or rented by the policyholder. A checked box here also is a red flag. This aggregate limit has no application for a company hiring a vendor because it excludes worksite locations. The location limit is designed only for the named insured’s properties like office buildings and equipment storage facilities.

“Project” applies the liability limits to each job rather than the entire policy. This is best for an additional insured.

4. Primary and Non-Contributory

Near the bottom of the COI is a box titled “Description of Operations.” This is a place for other policy endorsements applicable to the certificate holder. One to look for is a primary and non-contributory endorsement. This policy amendment specifies usage order when multiple policies get triggered by the same event. Review the endorsement directly. The policy clause should state that a contractor or vendor’s policy is primary to the loss without seeking contribution from the additional insured’s policy. This ensures the contractor’s policy applies in full before pursuing any financial contribution from the certificate holder.

5. Policy Exclusions

Review the description section for policy exclusions. A contractor’s general liability policy can include a number of exclusions capable of creating an unpleasant surprise in the event of a claim. When listed, consult the policy to fully understand any limitations as it relates to the contracted work.

For example, an injury to employee endorsement can make upstream parties responsible for downstream employee injuries despite an indemnification agreement. Classification limitations narrow a named insured’s coverage to only designated operations cited within the policy using specific Insurance Services Office (ISO) codes. Cross suit exclusions limit an additional insured’s ability to bring a suit against a named insured. Should a contractor change insurance policies, a prior work exclusion ensures that work completed before the policy’s inception date goes uncovered. Exclusions also exist for subsidence and earth movement work, pollution, and residential projects.

These are just a few of the countless exclusions that insurers can add to a policy to minimize their liability. Limitations can be sneaky and extremely costly when unnoticed. Any exclusions listed on the COI should be a red flag to consult the policy to ensure no negative impacts for the additional insured should a loss occur.

A Certificate of Insurance Isn’t Enough

Simply checking the boxes when collecting and scanning the COI without reviewing other supporting documents is not enough. The amendments, exclusions, and language of the policy and its endorsements matter. The COI provides a snapshot. The policy tells the full tale. Don’t let that story include a claim because of speed reading or skipped pages. No one likes a bad ending.

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