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Why You Need More Than Just a Certificate of Insurance

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It is common practice for entities such as owners, contractors and design professionals to contractually require another party to provide insurance. The most common method of providing information related to this requirement is through a certificate of insurance. A certificate is usually issued on a form copyrighted by an organization named ACORD (Association for Cooperative Operations Research and Development). Other forms can be used, but because the ACORD form is the most commonly used form today, this discussion will focus on the terms of that form of certificate.
Many individuals place too much significance on the certificate and are surprised to learn of its limitations. Here are the top five reasons to not rely on a certificate:
1. Information Only. The most important thing to remember is that a certificate is provided for information purposes only and is not part of the insurance policy. If you look carefully at the most recent ACORD form (Form 25, Certificate of Liability Insurance), you will see that it contains a disclaimer: “This certificate is issued as a matter of information only and confers no rights upon the certificate holder. This certificate does not affirmatively or negatively amend, extend or alter the coverage afforded by the policies below.” Practically, this means that even though a certificate states that certain insurance coverage exists, this does not mean that it does. Of course, brokers and agents have obligations to fill out certificates with accurate information, but if the information is incorrect, you likely won’t be able to rely on a certificate alone for coverage.
2. Additional Insured. Just because the certificate states that you are an additional insured doesn’t mean that you are. The only way that a party can be added as an additional insured is by endorsement. Therefore, even if the certificate states that you are an additional insured, you will not be afforded such a status unless the insurance carrier actually endorses the policy. A good business practice is to not rely on the certificate as evidence that you are an additional insured; request an actual copy of the additional-insured endorsement along with the certificate. This will also allow you to verify whether the endorsement matches the contract requirements.
3. Notice of Cancellation. Don’t be surprised if you are not provided with notice of a cancellation or nonrenewal. In 2009, ACORD changed its form language to state: “Should any of the above described policies be cancelled before the expiration date thereof, notice will be delivered in accordance with the policy provisions.” This statement reaffirms the general rule that an insurance carrier is under no obligation to provide notice unless the terms and conditions of the policy provide for the notice. In addition, notice is usually provided only to “named insureds” and not additional insureds. A good business practice is to specifically include notice requirements in the contract between you and the other party or consider requesting that the policy be endorsed to provide cancellation notices.
4. Not Matching Contractual Requirements. Many entities receive a certificate and assume that any contractual insurance requirements between the parties have been met. When a broker or agent completes a certificate, however, he or she may not compare the terms of the insurance policy with the contractual insurance requirements between the parties. Be sure to review the certificate against the contractual requirements and request additional evidence or explanation if needed.
5. Snapshot in Time. A certificate is limited to providing information about a policy at a given time. Because it is just a snapshot in time, the certificate will not reflect future changes in the policy, such as added exclusions or reduced coverages. Therefore, it is imperative that the insurance requirements be clearly articulated in the contract between you and the other party to protect your interests. Don’t rely on the certificate as proof that insurance coverage will continue and not change.
In sum, a certificate still provides a good starting point for obtaining information about another party’s insurance information and should be used. A certificate is especially important in identifying insurance carriers and policy numbers in the event of a claim. But be aware of its limitations and adjust your business practices accordingly. Remember to always review a certificate for any errors or information that conflicts with the contractual requirements.