What is a Certificate of Insurance?
Before diving into this question, it’s important to understand exactly what a Certificate of Insurance (COI) is. A Certificate of Insurance is a summary document issued by an insurance company to verify the existence of an insurance policy. It generally lists a policyholder’s name, coverage, and main conditions and limits of that policy, and is usually issued to a third party who needs evidence that such a policy is in place. The certificate will not provide all contract terms, exclusions or conditions, and oftentimes includes a disclaimer stating that its sole purpose is a matter of information only and does not extend or alter coverage.
Purpose of a Certificate of Insurance
While a Certificate of Insurance does not provide all terms and conditions of a policy, its purpose is to provide evidence to third party individuals such as customers or contractors, that the person or business in question, does have coverage. It serves the same purpose as a driver’s proof of insurance. At the scene of an auto accident, drivers exchange information and their proof of insurance cards to show that the driver has a policy and the financial resources in place, to protect against such incidents. The same can be said for a Certificate of Insurance in the business world. Businesses will typically shy away from hiring a company or contractor without a certificate because they do not want to assume any potential risks or costs that proper insurance would cover.
Concerns Around Certificates
The main concern around Certificates of Insurance is something that we’ve already mentioned above: while the certificates provide proof of a policy, there is no clear indication of coverage inclusions and limitations. Additionally, the general assumption is that if a Certificate of Insurance is issued, the policies are compliant with the typical requirements of the contracts. Because of this, it is not uncommon for tenants and subcontractors to later learn of gaps in coverage that may not meet their contractual obligations, leaving both the company and subcontractors at risk.
A second concern is around the process of placing additional insured on the policy. While a Certificate of Insurance will state the type of policy and that a recipient has been added, it is not enough to prove the insured’s status meets their obligations. Many policies are written in a way that limits the coverage provided to the additional parties. This provides another potential risk to all involved.
The final concern is at the state level and the definition they’ve assigned to certificates. While insurers and regulators establish that Certificates of Insurance are shorthand indications of coverage and limitations, the state has taken it a step further. They argue that these certificates cannot amend provided coverage, cannot guarantee the policy meets contractual requirements and lastly declares that they do not create any rights for the certificate holder. Herein lies the problem. While the state clearly denounces the importance of the certificate, in the corporate world, it is still widely believed that a certificate establishes insurance coverage. If this is not the case, what purpose does a Certificate of Insurance serve?
Perform Your Due Diligence
When reviewing a Certificate of Insurance, remember that it is there to solely indicate that coverage exists. Answering what type of coverage, limitations and who is fully covered is best served by requesting full documentation of the policy. This helps to ensure that no generalizations are made about the coverage, which may mislead the parties involved. It is ultimately up all involved to identify the full extent and limitations of the coverage so that all contractual obligations are met.
If you need assistance or a review of coverage, reach out to us to discuss the policy you currently have in place. Contact Us Today!