If your organization has gone through the process of thoroughly vetting subcontractors or 3rd party vendors for a job, then what’s the purpose of securing a Certificate of Insurance (COI) for each one of them? Afterall, those involved in the insurance process, whether an agent or the insured themselves, all seem to understand that a COI isn’t binding and isn’t a legal contract, but rather a documentation that a policy actually exists.
A recent Insurance Journal article entitled, “Do Certificates of Insurance Matter?” explained that language can be found on most COI documents stating very plainly that:
“THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS ON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AMEND, EXTEND OR ALTER THE COVERAGE REPORTED BY THE POLICIES DESCRIBED BELOW.”
What’s the Purpose of a COI?
So if COIs aren’t binding contracts, then what purpose do they serve and why do organizations need to collect and review these documents—in addition to endorsements—carefully for each new subcontractor or 3rd party vendor contract? The article, “Do Certificates of Insurance Matter?” explains this well:
“In reality, the Certificate is quite an important document in that it serves as the insured’s evidence to customers, contractors or other third parties that the insured has obtained insurance. It indicates that the business or individual named as the insured or additional insured has the financial resources available to protect those who may come to harm through their own negligence. It is less cumbersome than an actual policy and can be produced more quickly and efficiently. It serves the same purpose that a driver’s proof of insurance serves to the victim of an auto accident whose car has been damaged—it shows that somewhere an insurance company issued a document saying there is a policy that may cover the loss.”
COIs are designed to prove status of insurance including items like coverage amounts of subcontractors or vendors in order to limit the liability to other organizations involved. Essentially, the COI is an important document as it proves to an organization that a subcontractor or other 3rd party vendors do indeed have appropriate coverage.
Another important feature that comes along with being a “Certificate Holder” is that when a policy is cancelled, or is in danger of being cancelled, the Certificate Holder gets notified as a courtesy. Now, the most recent wording on the ACORD 25 (which is a standard certificate form) it states that carriers will “endeavor to notify” which is somewhat vague and doesn’t necessarily require the insurance company to give fair warning. However, it’s better than not collecting a Certificate of Insurance or receiving a COI and not ensuring your organization’s address appears at the bottom as “Certificate Holder”, which could result in lack of notice and a potential costly court case.
COIs Don’t Replace the Need to Collect & Review Endorsements
Of course, it’s important to keep in mind that these documents don’t replace the need to collect and review endorsements and policies, but COIs represent an easily trackable document.
Concerning Additional Insureds, it is important to ensure that your organization has confirmed that status with either wording on the Certificate of Insurance or via the endorsements themselves. The reason for this is when a claim for liability arises, the first party that’s looked at is the one with the deepest pockets. This will also be a consideration in WHO is named in the lawsuit. If your organization gets “pulled in” to a claim or potential lawsuit as a result of association (via a contract, project, or ownership), then you’ll need to be sure that your organization has coverage in place to answer defense costs at the very least.
Who Should Request a Certificate of Insurance?
A Trusted Choice article entitled, “Do You Need a Certificate of Insurance?” advises that if your organization hires subcontractors or 3rd party vendors of any kind, a COI should be requested. Here’s why:
“If your company hires subcontractors, it is extremely important that you get a certificate of insurance from each one you work with. Even if you trust your subcontractors—for example, if you have worked with these contractors in the past and knew them to have insurance at the time—you should submit a certificate of insurance request each time you hire them onto a new job. Doing so can prevent a scenario where you inadvertently take on the risks associated with the work your subcontractors perform.”
Easily Capture & Track Important COI Information
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 certificate 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.