In latest edition of The Wright Toolbox:
- Certificates of Insurance – read now
Certificates of Insurance
The ubiquitous certificate of insurance. Most contracts in construction and procurement require one or more of the contracting parties to procure various forms of insurance. Typically, you will see requirements for workers compensation, automobile, commercial general liability, etc. Design contracts will require some form of errors and omissions coverage. Generally, proof of the procurement of the required insurance coverage is demonstrated by the tendering of a Certificate of Insurance (“COI”). All too often the COI is simply an item on a check list and once it is provided the box gets checked that it was received and the COI gets stuffed into a file. However, the COI is actually a critical document that must be carefully reviewed and compared to the requirements of the contract. Accordingly, it is important that we understand what a COI is, what it is not and how it should be treated.
A COI is a document, usually a one-page form, issued by an insurance agent that lists and describes the types and limits of insurance coverage for an insured. A COI only provides evidence that insurance for a named risk exists. It is issued for information purposes only. Nevertheless, it is an important first step that a COI be required and obtained prior to the onset of performance.
A typical COI provides a wealth of information including: the dates when coverage will begin and terminate, the type of coverage being provided, the policy number of the insurance, the limits of liability, whether the policy is claims made or occurrence, whether there are any additional insureds, the scope of coverage and any significant exclusion from coverage. If the contract documents require advance notice prior to a cancellation of the insurance, the COI should identify the cancellation provision.
As noted, a COI does not create a contract of insurance between the insurer and the holder of the certificate. Nor does a COI modify the terms of the underlying policy. The certificate merely assures the holder that coverage exists and is in force. The standard COI form generally makes this clear with a prominently displayed cautionary statement such as:
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 listed below. Notwithstanding any requirement, term or condition of any contract or other document with respect to which this certificate may be issued or may pertain, the insurance afforded by the policies described herein is subject to all the terms, exclusions and conditions of such policies.
Depending on the language of the contract, when a certificate of insurance is required to be submitted prior to the commencement of work, provision of the certificate may be a condition precedent to the contract and failure to provide the certificate could justify termination of the contract or withholding of payment.
Once the COI has been obtained, it is important to carefully review the certificate and make sure that the information contained therein complies with the requirements of the contract documents. Initially, it should be confirmed that the insurance covers the correct party. Often contractors, subcontractors and/or suppliers will operate under several different corporate entities or trading names which may be related to one another. In reviewing the COI make sure that the named insured is the party who executed the contract and is performing the work. The types and amounts of coverage should also be confirmed to ensure that they comport with the requirements of the contract documents. Further, the dates of coverage must be confirmed and noted for follow-up. For example, if the certificate of insurance reveals that the CGL policy will lapse in three months, proof of continuing coverage must be obtained at the end of that period and a new certificate of insurance provided to avoid any gaps in protection. In addition, if the contract documents require that various parties be listed as additional insureds, the certificate of insurance should note that information and it should be confirmed in reviewing the certificate. If the certificate of insurance identifies exclusions or other information that draws into question the scope of coverage, the actual policy should be requested to confirm the exact nature of the coverage and any exclusions. Another problem to be aware of is that for many companies, coverage verification tends to end when the performance of the contract ends. However, many contract obligations require that coverage continue to be provided for completed operations for a period of time after the completion of the contract. In order to verify that the coverage exists, and that the additional insured status continues for the completed operations extension of the contract, renewal certificates evidencing the coverages required by the contract should be required each year until all of the contractual obligations end.
It must be remembered that the COI does not alter the actual coverage. Taking a few minutes to review the certificate of insurance and checking it against the requirements of the contract documents can avoid potential problems in the future if insurance coverage is needed. If you have any questions regarding certificates of insurance please contact our Government Contracts, Construction Law or Insurance Defense practice groups.