Certificates of Insurance – Issues to Consider
By Sue C. Quimby, CPCU, AU, CIC, CPIW, CLP, DAE – Senior Vice President
Certificates of insurance (COI) are often a source of headaches for insurance agents and producers. Mishandling of certificate requests can lead to an errors and omissions exposure for the agent. Helping clients understand possible problems with certificates of insurance is another value-added service of the professional insurance agent.
The purpose of a certificate of insurance is to document the existence of an insurance policy. It is a snapshot at a point in time. In many cases, the certificate is necessary in order for the client – usually a contractor or vendor – to receive payment for their work. Required information includes the name and address of the client(insured), insurance companies and agent. Policy type, coverage limits and effective and expiration dates are also needed.
Contractual requirements between the client and the certificate holder may not align with available insurance coverage. Many times, agents are asked to include wording to hold the certificate holder harmless for nearly anything that might happen or waive subrogation against the certificate holder. Agents may be asked to certify that the insurance carried fully satisfies all the requirements of the contract between the agent’s client and the certificate holder. Unless they are attorneys, agents should not attempt to provide a legal interpretation of the contract. It is preferable, when possible, to attach copies of the actual policy forms with the certificate, so the certificate holder can make their own analysis.
Potential problems with certificates of insurance include fraud by the agent, insured or certificate holder. Time is usually of the essence, as eleventh hour requests for certificates are commonplace – often at the point when the client is looking for payment for the job.
The insured and certificate holder should be notified, in writing, that the certificate should not be relied upon as a confirmation of coverage limits that are currently available, as losses may have depleted the limits. Where umbrella/excess layers are available, the certificate should show only the limits that are required by the contract.
Ideally, planning for certificates of insurance should start long before they are requested. Proper review of the coverages offered, with an understanding of the types of additional insureds that the agent is authorized to add, will go a long way towards avoiding a potential problem. The client must be advised that a lawyer should be contacted to review the contract requirements, and that there may be times when it may not be possible to issue a certificate that complies with all parts of the contract.
Ideally, the need for certificates should be made known to the agent prior to starting on relevant work. Any necessary coverage revisions can be made to the policies at that point. The agent cannot make coverage changes on a certificate of insurance, or name a new additional insured, without authorization from the insurance company.
There may be times when a certificate cannot be issued. For example, the policy may be pending cancellation due to nonpayment, or is approaching expiration and has not been renewed. An alternative to not issuing certificates might be to indicate on the certificate that cancellation is pending.
Certificates of insurance are regulated on the state level. While there is no prescribed standard, historically, certificates of insurance have included disclaimers that the certificate is merely an indication of coverage and does not change the underlying policies, and that the agent will “endeavor” to notify the certificate holder if the coverage is cancelled. A clear understanding between the agent and insurance company of the proper procedures about who is responsible for sending notices of cancellation is essential.
Improper preparation of a certificate of insurance can lead to potentially devastating errors and omissions claims for agents. They may be held liable for misrepresentation of coverage, including failure to confirm additional insured status with the insurance company if needed. Certificates of insurance should be checked and signed by a producer licensed in the state where the client conducts business. Helping clients understand the possible pitfalls of the certificate requests is another sign of the true insurance professional.
This article is for educational and discussion purposes only and it is not insurance or legal advice and should not be relied upon when making insurance or legal decisions. Nothing herein shall be construed to constitute a legal or underwriting opinion. Nothing herein shall be construed as offering any political, social, or public policy opinion by the author or MSO. Neither the author nor MSO are responsible for errors in, or the accuracy or currentness of, the article.
