Who needs a Certificate of Insurance

Certificates of Insurance…Who Needs Them?

What is a certificate of insurance? A certificate of insurance is a standardize document that provides evidence that certain types of insurance coverages and limits have been purchased by the party required to provide the certificate. Who needs a certificate? Well, you do if you are planning on contracting with a company to perform work for your company—often a contractor. Imagine for a moment that you hire a contractor to do construction work for your company. It is a reputable contractor that you have done business with in the past; the price is right; you have insurance requirements spelled out in the contract but nobody bothers to ask for a certificate. "We've done business with them in the past, they had insurance then everything should be fine". The contract is signed and the work begins. A few days into the project the contactor makes a mistake and hits a gas line. The ruptured gas line explodes and a fire ensues, causing property damage and severe injuries to several of their employees.

When you go back to check on the insurance of contractor, you find that for some reason the coverage has lapsed. Your company is now next in line to pay for the property damage and the injured employees. Your general liability premium increases the next couple of years because of the large property claims. The workers compensation claims are extensive and effect your company's experience modification for a couple of years affecting the rate you are charged for your coverage no matter who your insurance carrier is. In most states, your company would be considered the general contractor and if the subcontractor that you hired doesn't provide WC insurance for their employees, you provide it by default. It is hard to believe that all this can happen because nobody asked for that one little piece of paper—the certificate of insurance. But it is very true!

This story may sound far fetched but the sad thing is, it happens. For those of us in the insurance industry, it happens far more often than we would like. Always ask for, collect, and check the certificate of insurance before any work begins. As a general rule, below are a few things you should be looking for on the certificates.

  1. Confirm that the company listed on the certificate matches the company entering into the contract
  2. Check the policy effective dates to confirm that the coverage is current and that it does not expire before the project is complete
  3. Check the policy limits to ensure adequate coverage. At TISC we recommend that you ask for at least the same coverage you carry on your General Liability, Automobile, and Workers Compensation policies
  4. Ask to be named as an additional insured for the particular project or contract at issue

Just a few simple questions are all it takes. Asking for a certificate of insurance may seem like a small and trivial item in the overall scheme of things, but you need to make sure that proper coverage is in place to protect your company from possible big headaches down the road. Will having the proper certificate of insurance in hand guarantee that your company will not be held liable or brought into a suit against a contractor? No, it won't in all circumstance i.e. you were grossly negligent and that negligence caused the accident, but having a certificate of insurance is definitely a powerful step in mitigating this exposure to a claim. In this day and age of fanatical litigation there are no guarantees, but we all owe it to our companies, employees, and customers to take the proper steps to cover all the bases. The company's that we work with at TISC are asked by there business partners to provide certificates of insurance almost everyday. We all should be doing the same and having all contractors/business partners provide us with certificates of insurance.

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