CERTIFICATES OF INSURANCE-A LOOK AT THE BASICS

Rough Notes, Feb 2005 by Stanovich, Craig F, Austin, William K

Understanding the purpose and limitations of a certificate of insurance can prevent problems

Five faxes have just been placed in your in-basket. Your phone is ringing and three e-mails have suddenly appeared, all marked critical. The lead producer just asked for policies to deliver to a customer in the next 15 minutes. To top that off, the boss has just arrived at your desk with an urgent request-an important customer wants a certificate of insurance immediately!

While there is not much we can do to slow this frantic pace, maybe some straight talk about certificates of insurance will help. A little better understanding may make the process a bit easier and also head off some of the pitfalls that sometimes occur. So let's take a look at certificates of insurance.

What is a certificate of insurance?

A certificate of insurance is a document that verifies the existence of insurance. While some businesses have designed their own certificate of insurance forms, the most common certificate form is distributed by the ACORD Corporation. We will focus on the ACORD 25 Certificate of Liability Insurance form, edition (2001/08).

A certificate is usually requested by someone with whom your customer, the policyholder, has a business relationship. Why the need to verify insurance and what's the hurry?

Let's assume your customer is an electrical contractor and the person requesting the certificate is a general contractor considering your customer for a big job that is out to bid. The certificate serves as evidence to the general contractor that your customer has the correct insurance in place.

This evidence is so important to the general contractor that delivery of the certificate is urgent. Your customer may not be able to bid, work or get paid for the job unless the general contractor has received a properly issued certificate.

The purpose of certificates

The sole purpose of the certificate of insurance is to provide information to the certificate holder about the policy-holder's insurance in force at the time the certificate is issued. By issuing a certificate, you are representing only the insurance your customer has in effect on that day.

Completing a certificate

Accurate completion of a certificate is a must. Obtaining and following the instructions published by ACORD for completing the certificate should help with the process. You should also know what instructions, if any, your insurance company has regarding certificates that may differ from ACORD's instructions.

It is worth noting that ACORD recommends in its instructions that the certificate of insurance not be used: (1) to waive rights; (2) to quote from a contract; (3) to attach an endorsement; or (4) to quote any wording that amends the policy unless the policy itself has been amended.

Let's consider your customer, the contractor, who needs a certificate of insurance from you.

Waiving rights. The certificate holder, in your case the general contractor, may demand that your customer waive or give up his or her rights against the general contractor. While your customer may agree to this, the certificate of insurance is not for recording this agreement.

Quoting from contract. The general contractor may also require your customer to keep the insurance in effect for three years after this job is completed. Even though this agreement is in the construction contract, the certificate is not intended to be used to reference a clause in a contract.

Attach an endorsement. The certificate holder may demand that the policy be endorsed-by adding the general contractor as an additional insured. The certificate of insurance is not intended to be used to endorse the policy; its sole purpose is to reflect accurately the insurance in effect. This doesn't mean an additional insured endorsement cannot be shown on the certificate; it does mean that the policy has to be properly endorsed before the certificate can list the general contractor as an additional insured.

Quoting policy amendment. The certificate holder may demand one other change: Your customer is to add the Waiver of Subrogation endorsement to the workers compensation policy and the endorsement wording is to be quoted on the certificate. This is certainly acceptable, but only after the workers compensation insurance company has endorsed the policy to add the Waiver of Subrogation endorsement. In short, don't quote the wording of any policy change unless and until the policy has been amended.

Completing a certificate-exclusions added by endorsement

An often-overlooked part of the certificate is the box toward the bottom with the heading "Description of Operations/Locations/Vehicles/ Exclusions Added by Endorsement/ Special Provisions." Depending on the situation, there may be no need to fill in this box.

You should, however, list in this box all endorsements that are attached to the policies that exclude coverage, such as mold or EIFS (Exterior Insulation and Finish Systems) exclusions. And yes, this does mean you have to identify and note all of the exclusionary endorsements to accurately issue the certificate.