In the world of business, risk management is a crucial component for ensuring smooth operations and safeguarding against potential liabilities. The Certificate of Insurance (COI) is a key tool in this process. Understanding a COI, why it is necessary, and how to read and manage it can significantly enhance your business's risk mitigation strategy. Here’s an in-depth look at Certificates of Insurance.

What is a Certificate of Insurance (COI)?

A Certificate of Insurance is a document that serves as evidence of insurance that an outside organization or company has insurance should an accident occur.  It summarizes the policyholder’s coverage, detailing the types of insurance, limits, and other critical information. However, it is essential to note that a COI is only valid for the period specified and must be reissued when the policy is changed or renewed. Note that a COI is not an insurance policy and provides only general information. 

Why are COIs Necessary?

1. Risk Transfer: COIs are vital for transferring risk from one party to another, ensuring that the financial burden does not fall solely on your business in the event of a claim.
2. Mitigation of Risk: COIs help mitigate potential risks by verifying that all parties involved in a project are adequately insured.
3. Ensure Alignment with Contract Requirements: Clients often require specific insurance coverages for a project. Ensuring that your sub-consultants comply with these requirements is crucial. If they do not, your firm could be liable for any gaps or excess above their insurance limits, leading to unnecessary exposure.

How to Read a Certificate of Insurance and What to Look For

These definitions and explanations are referenced by number on the Certificate of Insurance image - click here for complete form.

1. Producer: Individual or business entity licensed by the state to sell, solicit, or negotiate insurance.
2. Insured: The named insured is the primary entity covered by the insurance policy.  Confirm that the named insured is the entity you are doing business with. Being listed as “additional insured” on the Certificate has limitations, and your entity may have no legal rights or access to the stated coverages. Insurance companies can and do deny coverage to entities named as “additional insured” on the Certificate. This is why you need an Additional Insured Endorsement; it changes the insurance policy, adding your entity to the definition of Who Is Insured or Covered.
3. Insurance Agent/Broker/Contact: An insurance agent or broker sells insurance policies and provides related services, often working for a producer. They act as intermediaries between insurance companies and customers, helping clients find the right coverage for their needs.
4. Insurer(s) Affording Coverage: The name(s) of the insurance company providing the coverage. Note that there may be multiple insurance companies involved.
5. Types of insurance, coverage included, and policy effective/expiration dates: Check the types of insurance listed and the corresponding coverages. Note the policy dates and ensure they cover the period you require.  Look for check boxes that provide important information about the coverage.
6. Limits and Coverages: Understand the limits and coverages, distinguishing between each occurrence (maximum coverage per individual claim) and general aggregate limits (maximum coverage for all claims within the policy period). These are the maximum amounts the insurance company will pay for covered claims. The only reliable way to verify whether the limits have been reduced is to obtain a current loss report from the insured for the policy period. You may have specific coverage limits required by your client and will want to ensure that your sub-consultant carries the same or higher amounts to avoid leaving your firm in the gap.
7. Descriptions of Operations: Ensure that the operations described match the scope of work covered by the insurance, for the project. If additional insured or endorsements are included for a given project, they are listed here.
8. Certificate Holder: A certificate holder is an individual or organization that receives a certificate of insurance from a policyholder. If your company is the certificate holder, ensure your business name and address are correct on the certificate. When sending a Certificate of Insurance (COI) to a client or other party, verify that their address is accurate.
9. Cancellation Notice: Check the notice period to understand how much advance notice you will receive if the policy is canceled.

Types of Coverage

1. Commercial General Liability: Typically, covers bodily injury, property damage, personal and advertising injury, and medical payments resulting from business operations.
2. Automobile Liability: Provides coverage for vehicles used in business operations.
3. Umbrella or Excess Liability: Offers additional coverage limits above primary policies.
4. Workers’ Compensation / Employer’s Liability: Covers employee injuries and illnesses that occur in the course of employment.
5. Professional Liability: Protects against claims of professional negligence, errors, omissions, or mistakes. It can be either claims-made or occurrence-based.
6. Pollution Liability: Covers liability for pollution-related incidents.
7. Cyber Liability: Provides coverage for businesses against risks related to cyberattacks, data breaches, and other technology-related issues.

Additional Considerations

1. Additional Insured: If required, ensure your firm is listed as an additional insured and that the endorsement adding your firm is included with the COI. An endorsement changes the policy to add your entity to the definition of who is insured (covered).  A statement on the certificate is insufficient to prove that coverage is extended to your firm. Most Professional Liability Coverages, as described below, do not permit adding entities as "Additional Insured." Consequently, if a claim arises, the insurance company will not cover any losses for or caused by the additional insured.
2. Understanding Primary & Non-Contributory: This clarifies the priority and obligation of an insurance policy in the event of a claim. The primary insurance policy responds first, paying up to its coverage limit before any other policies are triggered. Non-contributory insurance prevents the primary insurer from sharing the loss with another insurer, ensuring that the primary policy handles claims without seeking contributions from other available insurance policies.
3. Waiver of Subrogation: This prevents the insurer from pursuing recovery from the third party that caused the loss, ensuring that your business does not become entangled in subrogation claims.

Post-Project COI Requirements

Even after a project is completed, it is essential to maintain COIs for a specific period, typically ten years post substantial completion or according to the state’s statute of repose. This ensures continued coverage for any claims that might arise after the project's completion.

Certificates of Insurance are an integral part of a robust risk management strategy. By understanding their importance, how to read them, and the various types of coverage they entail, businesses can better protect themselves and ensure compliance with contractual requirements. Stay vigilant and proactive in managing your COIs to safeguard your business against potential risks and liabilities.

Want to Learn More? Check Out This Resource:

SDA Webinar Recording - Understanding and Complying with Client Insurance Requirements