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Certificates of Liability Insurance

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Certificates of Liability Insurance

Image Courtesy of [Jeroen van Oostrom] / FreeDigitalPhotos.net

If your company hires contractors to do some type of work, you will probably ask the contractor to present a certificate of insurance. Likewise, if your firm is hired to do work for another company, the hiring company will likely ask you to provide a certificate. What exactly is this document?

A certificate of insurance provides evidence of insurance coverage. It is not part of a policy, and does not add, remove or alter any provisions in the policy. It simply provides a summary of a company’s insurance coverage. The following example will demonstrate how certificates of insurance are used.

Elite Estates owns several commercial properties, including an apartment complex called Verdant Villas. The apartment complex is looking a bit dingy and Elliot, a manager at Elite Estates, decides it needs a coat of paint. Elliot decides to hire a painting contractor called Pro Painting.

First, Elliot prepares a contract that outlines certain requirements the painting contractor must meet in order to be hired. One of these requirements has to do with liability insurance. The contract states that Pro Panting must maintain a commercial general liability policy with a $1 million “per occurrence” limit and a $2 million “general aggregate” limit.

Peter, the owner of Pro Painting, signs the contract. However, Elliot tells him that Pro Painting cannot begin any work until Peter provides a certificate of liability insurance. The certificate will verify that Pro Painting has liability coverage that meets the requirements specified in the contract.

Certificates of insurance are normally issued by an insurance agent or broker. Most certificates are issued on standard forms. Separate certificates forms apply to liability and property insurance.

Information Provided

Certificates are usually requested to verify the existence of liability insurance. The standard liability certificate contains separate sections for general liability, auto liability, umbrella liability, and workers compensation/employers liability. A liability certificate contains the type of information listed below. In this list, "insured" means the company that has been asked to provide the certificate.

  • Insured's name and mailing address
  • Name and mailing address of insured's insurance agent
  • The name of person at the insurance agency whom the insured can contact with questions
  • The names of insured's insurers
  • A brief description of the insured's policies and the limits provided, by type of coverage. For example, the General Liability section will summarize the six separate limits provided by the insured's liability policy. It will also indicate whether the insured's coverage applies on a claims-made or occurrence basis.
  • If the insured has purchased commercial auto liability coverage, the certificate should indicate the types of autos the policy covers. The options include “any auto”, “all owned autos”, “hired autos”, “scheduled autos”, and “non-owned autos”.
  • If the insured has an umbrella policy, the certificate will show the limits it provides and whether the coverage is claims-made or occurrence.
  • No limit is listed for workers compensation coverage since state laws determine the benefits provided to injured workers. However, limits should be listed for employers liability coverage.
  • A description of the operations the insured is performing.
  • The name and address of the certificate holder. This is the person or company that has demanded the certificate. In some cases, the contract may require the insured to cover the certificate holder as an additional insured under the insured's liability policy. In this case, the certificate holder may require a statement on the certificate that it is indeed covered under the insured's liability policy as an additional insured.
  • A statement outlining the insurer’s obligation, if any, to notify the certificate holder if the insured's insurance is cancelled. This issue is explained in more detail below.

Additional Insured Status

In the Elite Estates scenario outlined above, suppose that the contract between Elite and Pro Painting requires the painting company to insure Elite Estates as an additional insured under Pro Painting’s liability policy. Since additional insured status for Elite Estates is a requirement of the contract, Pro Painting will need to comply. Pro Painting’s insurance agent must ask Pro’s insurer to add an endorsement to Pro’s liability policy that lists Elite as an additional insured.

Some liability policies contain language that includes certain parties automatically as additional insureds without the need for an endorsement. For example, suppose Pro Painting's policy states that it covers, as an insured, any person or organization for which Pro Painting has agreed in a written contract to include as an insured, but only with respect to Pro Painting's ongoing operations for that insured. Elite Estates meets this description so it should be covered automatically as an additional insured.

Suppose that you have been asked to provide a certificate of liability insurance to XYZ Inc. You have also been asked to include XYZ Inc. as an additional insured under your liability policy. Your agent issues a certificate stating that XYZ Inc. is an additional insured under your policy. However, your agent never sends a request to your insurer asking for an additional insured endorsement. Your policy does not contain any automatic additional insured language. No one notices the error. Six months later XYZ Inc. is sued because of your negligence and demands coverage under your liability policy. Will XYZ be covered as an additional insured based on the statement in the certificate? The answer is probably not. A certificate is not an endorsement. It does not change the policy. If the coverage described in a certificate is not contained in the policy, the coverage is not likely to be provided.

Notice of Cancellation

Until 2009, the standard form used to issue certificates of liability insurance contained a provision regarding cancellation of any of the policies listed in the certificate. This provision stated that if any of the policies was cancelled before its intended expiration date, the insurer would “endeavor” to notify the certificate holder a specified number of days in advance. This language gave certificate holders the impression that they would be notified if the policyholder's liability policy was cancelled before its expiration date. However, many certificate holders were not notified when policies were cancelled. Why? Insurers followed the cancellation provisions in the policy. Under the standard liability policy, only “you” (the named insured) receive notice if the policy is cancelled.

The current certificate of liability insurance states that if any of the policies listed in the certificate is cancelled mid-term, notice will be delivered in accordance with the policy provisions. In other words, additional insureds will be provided notice of cancellation only if the policy states they will be notified.

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