Understanding certificates of insurance
How to examine a COI and mitigate the risks
Imagine your contractor causes significant property damage.
You are provided a certificate of insurance (COI) listing you as an additional insured. You tender the claim as an additional insured and learn the contractor’s policy lapsed due to nonpayment. Your insurance agent says your carrier will settle the loss and seek recovery from the contractor under its subrogation rights under your policy, which is unlikely, as the subcontractor’s policy lapsed prior to the damage. Your carrier may also be prevented from seeking recovery under your contract with the contractor as the contract contained a waiver of subrogation clause. As such, your carrier will settle the loss, and the claim will likely increase your insurance premiums at renewal and may result in cancellation.
You are confused: Didn’t the COI say you were to be notified if the contractor’s policy lapsed? Not necessarily. This article will address how to examine a COI, and how contractor (and owner) controlled insurance programs may mitigate such risks.
A certificate of insurance is not an insurance policy. It is evidence of insurance when the COI was issued. You are either the policyholder, named insured or an additional insured. If you are only listed as the certificate holder, you are not covered under the policy – a certificate holder is the party to whom the COI was sent.
Properly completed, a COI will list the following:
• Producer: The party issuing the COI
• The insurer providing coverage
• Type of insurance: Check that the required insurance is included
• Policy number: Check for a policy number evidencing coverage.
• Policy effective date
• Policy Expiration Date
• Limits of coverage
• Description of Operations/Locations/Vehicles/Exclusions Added by Endorsement: This section is "manuscripted" to describe specific requests (adding additional insureds or covered locations).
• Certificate holder: The party to whom the COI is issued
The predominant form COI is one of many copyrighted by ACORD Corp., whose forms cover many risks and are continually revised.
Additional insured status
To be covered under another’s insurance policy, you must be added as an additional insured by endorsement.
On the COI, the producer will check the "Description of Operations” box and “manuscript” language, such as “Anybody LLC is hereby added as an additional insured for work performed at 0 Main Street, Nowhere, Mass.”
Notice of cancellation
The ACORD COI states that the insurer will “endeavor” to send notice of cancellation or expiration in accordance with the policy, but you cannot know if you will receive written notice without reviewing the policy. In some cases, you may need a policy amendment to require notice to the additional insured. Otherwise, you may need to periodically check with the producer regarding cancellation.
Questions on the COI form are best addressed to your insurance advisor. A properly issued COI will reduce unintended liabilities.
OCIP/CCIP: Is it right for you?
For larger projects, a contractor or owner controlled insurance program (OCIP) may be appropriate.
Under an OCIP, the program sponsor purchases insurance covering all parties working at the project. Also referred to as “wrap-up” insurance plans, OCIPs give the owner or general contractor control over coverage.
When a claim arises, a carrier has the right to assume the claim on behalf of its insured and pursue recovery from the responsible party. This is referred to as subrogation. Allocating these losses to the responsible party is time-consuming and may create adversarial relationships among parties.
Under an OCIP, all parties are “wrapped up” into one policy.
When estimated correctly, OCIPs can save money as subcontractors eliminate the cost of their insurance from their bids.
Risks of OCIP/CCIP
Despite the benefits, a large claim may expose inadequate coverage. Policy limits too low may require additional coverage, likely at higher cost than when purchased.
Additionally, OCIPs typically provide coverage on a specific project site. You may not be covered for off-site claims.
Based on the size duration, and risk of your project, your insurance adviser can determine whether an OCIP is right for you.
David Moynihan, director in the Corporate Department at McLane Middleton’s Woburn, Mass., office, can be reached at 781-904-2722 or firstname.lastname@example.org. Catherin O’Brien, a third-year student at Northeastern University School of Law, contributed to the article.