Guide · September 21, 2016
Certificate of Insurance: What It Does and Does Not Prove
A certificate of insurance is a one-page summary of a supplier's insurance, and it is not the policy itself. It tells you that coverage was in place on the day the paper was issued. It does not promise that the coverage will still be there next month, and it does not give you rights under the policy.
If you hire a contractor, a caterer, a cleaner or any vendor who will work on your site, you will probably ask for one. This checklist shows what to look for and where the paper stops.
What the certificate is
The standard certificate for liability insurance is the ACORD 25 form. An agent or broker fills it in and sends it to the person who asked. It lists the insurer, the type of policy, the policy number, the start and end dates, and the dollar limits.
The form says so on its face: it is issued as a matter of information only and confers no rights on the certificate holder. It also says it does not change the coverage that the policies give. And it says the certificate is not a contract between the insurer, the agent and the holder.
That wording matters. You are the “certificate holder.” You are not a party to the insurance contract. The certificate is proof that a policy existed, nothing more.
Check one: the policy dates
Look at the effective date and the expiration date for each policy. The work you are hiring for should fall inside both dates. A policy that ends in two weeks will not cover a three-month job.
Also check the issue date in the top corner. A certificate that is a year old tells you little about today. Ask for a fresh one when the policy renews, and put that duty in your agreement.
Check two: the type and the limits
Match the type of policy to the risk. General liability is not the same as auto liability or workers' compensation, and each has its own row on the form. Confirm that the row you care about is filled in.
Then read the limits. The form warns that the limits shown may have been reduced by paid claims. A supplier with a large limit on paper may have used much of it on earlier losses. Ask the supplier how the limit stands today, and ask for the name of the insurer so you can confirm it with the agent.
Check three: named holders and extra insured status
Many contracts ask that your business be an “additional insured.” That means your business is covered under the supplier's policy for claims that arise from the work. A box ticked on the certificate is not enough.
The form itself warns that when the holder is an additional insured, the policy must be endorsed. It adds that a statement on the certificate does not give the holder rights in place of the endorsement. An endorsement is a signed addition to the policy. Ask for a copy of it, not just the certificate.
The same caution applies to a waiver of subrogation. That is a promise by the insurer not to chase you for money after a claim. If the contract needs it, the policy may need an endorsement for it too.
Check four: the cancellation promise
Buyers often assume that the insurer will warn them if the supplier cancels. The current form does not promise that. Its cancellation box says only that notice will be delivered in accordance with the policy provisions.
That is a pointer to the policy, and most policies send notice to the named insured and the agent, not to you. A trade writer in 2008 noted that insurers are not obliged to send cancellation notice to a certificate holder, because the holder is not a party to the contract. Older versions of the form carried softer “endeavor to mail” language, and some agents still say it.
If notice matters to you, write it into your contract. Require the supplier to tell you at once if a policy is cancelled, changed or not renewed. Ask your own agent whether the policy can carry a notice endorsement.
A short checklist to keep
- Is the certificate current, and from the agent, not typed up by the supplier?
- Do the policy dates cover your whole job?
- Is the right type of insurance filled in, with limits that fit the risk?
- Are you named as the holder, and is any extra insured status backed by an endorsement you have seen?
- Does your contract, not the form, require notice if coverage ends?
- Have you set a date to ask for the renewal certificate?
If a job is large, ask your own agent or lawyer to read the policy and endorsements. A certificate is a good first step. It is a place to start asking questions, not a reason to stop.
Sources
- ACORD 25 (2014/01), Certificate of Liability Insurance, ACORD Corporation, edition dated January 2014
- Marjorie Segale, “Contractors and Certificates of Liability Insurance,” Insurance Journal, May 5, 2008, insurancejournal.com/magazines/mag-features/2008/05/05/156220.htm