De-Mystifying Certificates of Insurance for the Business Client

A certificate of Insurance is simply a document that states who an insured is, where they are located, what insurance company they have their insurance with, the policy number, effective dates of the policy, possibly a description of the insured’s operations, and the limits of insurance. A certificate of insurance is not a contractual agreement nor does it guarantee that there will be coverage in place at the time of a claim.

There are several questions that need to be considered when requesting a certificate of insurance from your insurance agent.  Who wants the certificate?  Why are they asking for it? Are they asking for any special wording? What does that wording do for them specifically? Am I giving up anything by providing a certificate with the special wording?  If there is special wording put on the certificate, can my policy actually provide that specific coverage? Are they asking for the special wording because I have signed a contract indicating I can provide the things they are asking for?

Following are some common asked for wording and what they mean:

1.       Additional Insured-is a person or organization that enjoys the benefits of being an insured under and insurance policy, in addition to whomever originally purchased the insurance policy. For example, general contractors will often require subcontractors to name them as additional insured on the subcontractor’s policy. In this case, if the general contractor is sued due to an incident arising from the work preformed, the subcontractor’s insurance will protect the general contractor. 

2.       Waiver of Subrogation-is the right of one party to assume the rights of a second party to bring a claim and collect damages from a third party. In other words, an insurance company has a right to take legal action against a third party that was responsible for a loss. When a waiver has been added to an insurance policy, the subrogation rights of the insurance carrier are waived and the policy may have to pay no matter if their insured was at fault or not. 

3.       Primary and non-contributory-is an attempt to stipulate the order in which multiple policies triggered by the same loss are to respond. In a loss situation, this not only means that your policy will pay first, but it will pay the full amount of the claim up to your policy limits without anyone else contributing to the loss with their own insurance. 

4.       Hold Harmless and indemnification Clause-is an agreement to hold the other party harmless in the event of a loss and to indemnify them for any damages/payments that may arise from that loss. For example, a hold harmless is usually provided by the subcontractor to the contractor insuring against all work being done by the subcontractor. This minimizes the risk of the contractor being brought into litigation in the event that there is an injury or loss sustained by the subcontractor.

- Amy McBride-Frobish