Reviewing an ACORD 25 Certificate of Liability Insurance may seem like a straightforward task, but it’s far from a simple ‘check the box’ exercise. The intricacies involved in this process require understanding the insurance verbiage and its implications. 

It’s easy to glance past the standard verbiage at the top of each certificate without much thought. However, the wording at the top of every certificate is essential to understand: “This certificate is a matter of information only and confers no rights upon the certificate holder.”  In other words, it’s just a snapshot of the policyholder’s insurance coverages, effective dates, and insurance limits at the time of the certificate’s issue date. It does not provide anything more than that. This leads to the second box, which is equally as important: 

Important: “If the certificate holder is ADDITIONAL INSURED, the policy(ies) must have ADDITIONAL INSURED provisions or be endorsed. IF SUBROGATION IS WAIVED, subject to the terms and conditions of the policy, certain policies may require endorsement. A statement on this certificate does not confer rights to the certificate holder in lieu of such an endorsement(s).”

What this means for your firm

What this means for your firm is that simply stating on the certificate that the holder is an additional insured does not ensure that the certificate holder is, in fact, an additional insured. To be an additional insured can only be accomplished through a policy endorsement. If you have requested that your sub-consultant include your firm in their policy as an additional insured, you will want to be provided with a copy of that endorsement. To protect your firm, insist upon being provided with the endorsement. You may even provide them with your company’s COI as an example. Absent this endorsement (or functionally equivalent embedded language within the actual policy(ies), which must be provided in lieu of an endorsement(s)), you cannot assume your firm is protected in the event of a claim.

What is an additional insured?

Policies are written to cover the entity that purchased the coverage for its own protection. They are the named insured. To extend the policy coverage to others, a policy endorsement is required. Endorsing the policy to name your firm as an additional insured means that your sub-consultant has agreed to extend commercial general liability and automobile liability coverage to your firm for claims caused in whole or in part by your sub-consultant. Neither professional liability nor workers’ compensation coverage can be endorsed to another entity including additional insured or primary and non-contributory status, period. 

Primary and non-contributory coverage

Equally important is assuring that your subconsultant’s insurance is primary and non-contributory. Primary and non-contributory insurance is a term used in insurance policies and certificates of insurance to specify the priority and obligation of an insurance policy in relation to other applicable policies. To clarify these terms:

Primary insurance is the insurance policy that responds first in the event of a claim. It pays out up to its coverage limits before any other applicable insurance policies are triggered. The primary insurer is responsible for handling and paying the claim without waiting for other insurers to contribute.

• Example: If a contractor has a primary general liability policy and an incident occurs on a job site, this policy will cover the claim up to its limit before any other policies are involved.

Non-contributory insurance means that the primary policy will not seek contribution from other insurance policies that might be available to cover the same loss. In other words, it prevents the primary insurer from sharing the loss with other insurers. The primary insurer is solely responsible for the claim up to the policy limits without expecting payment from other insurers. 

• Example: If a client requires a contractor to have primary and non-contributory insurance, it means that the contractor’s policy will cover any claims first and in full without asking the client’s insurance to share in the payment.

Importance in Contracts

• Risk Transfer: This provision is often required in contracts to ensure that one party’s insurance policy (e.g., a contractor’s policy) will handle claims without involving the other party’s insurance (e.g., the client’s policy), effectively transferring the risk.
• Clarity and Priority: It provides clarity on the priority of coverage and ensures that the party requesting the COI (e.g., the client) is not financially impacted by claims arising from the insured party’s (e.g., the contractor’s) actions.

Example Scenario

Imagine a scenario where a contractor works on a client’s project, and the contract specifies that the contractor’s insurance must be primary and non-contributory. If an accident occurs on the job site and a claim is made, the contractor’s insurance will pay for the damages up to its coverage limit without involving the client’s insurance. This protects the client from potential premium increases or claims on their insurance policy.

Ongoing Operations and Product-Completed Operations Hazard

Another element of the Additional Insured Endorsement is in the “Who is an Insured” section of the endorsement. Some firms may include only “ongoing operations” in their endorsement. An “ongoing operations’ endorsement does not protect against post-completion claims. You want to see verbiage to the effect of “In the performance of your ongoing operations” and “In connection with “your work” and included within the “product-completed operations hazard” to ensure that claims that occur both during your ongoing services and after the project has been completed will be covered. If not, your firm stands in that coverage gap.

Summary

Understanding and enforcing these insurance requirements for your subconsultants will significantly mitigate your firm’s claims risks. Ensure that each certificate of insurance is reviewed carefully for these essential elements. Additionally, set up a system to track and monitor your sub-consultant insurance renewal dates. Many software programs have this system built-in to provide reminders. 

Want to learn more? Here are some resources.

SDA Recordings: Understanding and Complying with Client Insurance Requirements 

AIA Trust – “Understanding Insurance: Additional Insureds: Home - AIA Trust (theaiatrust.com)

SDA Blog  - Certificates of Insurance: An Essential Guide for Businesses - SDA (sdanational.org)

SDA does not endorse any products or services mentioned, and SDA does not assume responsibility for any circumstances arising out of the interpretation, application, use, or misuse of any information presented. SDA recommends that the reader consult the appropriate legal, financial, or human resource counsel before implementing the information contained herein.