An often overlooked component of risk management programs is the handling of certificates of insurance. Contractual risk transfer is a critical part of any comprehensive risk management program and it starts in the contracts you enter in to with other parties. Certificates of Insurance evidence the coverage you agree upon in a contract, allowing you to confirm the required coverage is indeed in place. Below is a list of items you should review when receiving a certificate of insurance from another party providing services or products to your firm:
- The insured name and address of the other party matches the contract in place.
- The certificate holder name should correctly list your firm and address.
- The certificate should be recently issued. The date of certificate issuance is critical to verify the coverage is current and in force.
- Insurers, along with their proper NAIC #, should be listed to allow you to verify they are adequate in terms of size and strength and meet your requirements.
- Policy expiration dates and policy numbers should show current coverage.
- Lines of Coverage should be appropriate for the services or products provided as outlined in your contract. For instance, if automobiles will be used on your premises, Auto Liability coverage should be evidenced along with workers’ compensation coverage in case an accident occurs.
- Limits of insurance should be sufficient and commensurate with the potential risk for loss. A firm demolishing a building will require much higher insurance limits then a vendor hanging curtains.
- Special coverage requested in the contract should be referenced on the certificate, including additional insured status, waiver of subrogation, limits per location or project, occurrence based coverage, and primary, non-contributory status. Language should be added in the “Description of Operations section and the appropriate boxes on the certificate should also be checked as appropriate.
- Cancellation provisions should match the contract requirements and be agreed upon by insurers.
- The issuing broker’s name and address should be shown under the Producer section, along with a signature of an authorized representative.
Risk Manager’s Takeaway:
After examining thousands of certificates over 20 years for clients, I am amazed at how many certificates are incorrectly issued and not properly reviewed by brokers, issuing parties or most importantly, the receiving parties. A little due diligence up front can save a lot of sleepless nights if and when a large or catastrophic loss eventually occurs (knock on wood).
