What is a Certificate of Insurance?
A Certificate of Insurance (COI), or proof of insurance, is a document issued by an insurance agency or broker to a vendor/company providing the details of the insured’s coverage — policy name, dates, and the coverage’s basic terms — and is used to assert and verify insurance coverage under specified conditions.
All COIs include the following information:
- Effective date (dates in which the policy starts and ends)
- Type of insurance coverage
- Who is covered
- The company provides coverage
Essential Aspects to Consider Regarding COIs:
- The amount insured
- Type of insurance
- Limits of liability
- The quantum of liability: commencement and expiration dates
Standard Certificate of Insurance Problems
Several issues regularly surface when administering certificates of insurance and fulfilling contractual requirements.
Certificates of Insurance Cannot Alter Policy Coverage
Certificate holders are routinely misled by insurance certificates when they review COI information. Confusion occurs when they misinterpret the coverages represented on the document as their contractual obligations. However, a certificate of insurance cannot amend or alter a policy without an official endorsement issued by the carrier that explicitly outlines the added, revised, or extended coverage. Over 45 states passed pertinent regulations surrounding certificates of insurance to protect all parties involved, including making it illegal to misrepresent policy information on an insurance certificate intentionally.
Coverage Misinterpretation Continues on Insurance Certificates
The misrepresentation of coverage frequently occurs when a party becomes an additional insured on matters concerning environmental coverage. Without the proper supporting endorsement demonstrating that an additional insured is in effect, the certificate holder could be held liable for damages at a work site. All-encompassing other insured endorsements are occasionally used but are not the best solution for satisfying requirements. There must be a direct contractual agreement between the insured and the liable parties for coverage to be applicable. Total fraud.
Many contractors solicit the help of their insurance agent to review the cumbersome requirements included in their contracts. To do this, they rely heavily on their agent’s expertise to provide coverage recommendations that comply with the stipulations outlined in the agreement. Due to the complex nature of contracts, such as those in the construction sector, insurance brokers and agents need proper education to understand the insured’s obligations fully. With such a high risk of human error occurring, the responsible party for issuing the certificate should seek counsel from their attorney before acting. Legal counsel is an effective method for eliminating the liability that arises from misreading complex contracts.
How Insurers Can Avoid Professional Errors and Omissions
Carriers and brokers should not quote the wording stated in a contract on the actual certificate, as specified in the instructions section of the ACORD form or carrier-specific certificates. Instead, insurers should examine contractual requirements side by side with the in-force policy to determine any deficiencies. In addition, it’s crucial to fully understand the working relationships of all parties involved in the contract. For example, knowing whom the insured is obligated to perform work for will help decide whether a blanket endorsement will suffice or any severe gaps in coverage.
Unreasonable Requests Resolution
It’s not always feasible to adhere to the requests of an insured party. If the matter involves an uninsurable request, agents often feel conflicted in issuing the certificate. They want to retain the client’s business, but through the dishonest process of fraud. Educating certificate holders and insureds that a certificate does not necessarily mean the policy complies with their requests. Supporting endorsements from the carrier to ensure the requirements are satisfied is often the best way to avoid this issue. Insureds need to understand that additional coverage can take time to secure, and if they have enough of it, they can include the extra charge in their bid. Sometimes, coverages are not attainable, presenting a rare opportunity for the insured to renegotiate the terms of their contract.
Cancellation Notices and Policy Changes
Like the language on the ACORD certificate states, the insurer has no obligation to notify certificate holders of any policy cancellations. However, it is vital to remember that the policy may not reflect the change in coverage when amending a certificate. To avoid this problem, insurers need to establish a system that ensures the proper parties will receive a cancellation notice when applicable.
How do COIs Help?
A COI protects the policyholder from specified liabilities. The certificate presents an overview of the insurance policy, stating what the insurance policy covers (situations) and those under the detailed insurance coverage. A certificate of insurance is necessary when liability and significant losses are a concern. The COI determines liability in an incident to protect against any disagreements or future lawsuits.
The policyholder is not liable for external issues caused by contractors or vendors hired, as each must also obtain their insurance policy and submit an active COI.
Certificates of Insurance are critical for reducing an organization’s risk. But because they offer no reward, they regularly dissuade businesses against dedicating the time and resources required to handle their weight effectively. Regrettably, the matter compounds by the steady influx of new COIs also needing to be sorted, stored, and tracked.
Manual processing of COI’s continues to be the method of choice for filing a certificate despite the development of more efficient technologies. The uphill battle opens the organization to an increased chance of mishandling COIs, resulting in a drawn-out legal battle.