Certificates of Liability Insurance
A Certificate Provides Information Only
A certificate of insurance serves as evidence of property, liability, aircraft, or another type of insurance coverage. The most commonly-used certificate is the certificate of liability insurance. Contractors are often required to provide this document before beginning any work. The hiring company relies on the certificate as proof that the contractor is adequately insured.
Certificates of insurance are usually provided by an insurer or an insurance agent or broker. They are often issued on standard forms published by ACORD, a non-profit organization owned by businesses in the insurance industry. The following example demonstrates how a certificate of insurance is typically used.
Elite Estates owns an apartment complex called Verdant Villas. Elliot is employed by Elite as the apartment manager. Elliot decides the complex needs painting so he contacts a painting contractor called Pro Painting.
Elliot prepares a contract that outlines some conditions the painting contractor must meet to be hired. Among other things, the contractor must have purchased a commercial general liability policy with a $1 million per occurrence limit and a $2 million general aggregate limit. Elliot agrees to hire Pro Painting to do the painting work. However, he doesn't finalize the contract until Pro Painting has provided a certificate of insurance verifying it has the liability coverages specified in the agreement.
The standard certificate of liability form consists of three main parts. The first section contains general information like the insured's name and mailing address, and the name and mailing address of the insured's insurance agent. Also included is the name of each liability insurer and its NAIC number, an identification number assigned by the National Association of Insurance Commissioners.
The top portion of the form contains disclaimer wording stating that the certificate merely provides information and does not afford the certificate holder any rights. It also states that the certificate doesn't constitute a contract between the issuing insurer or producer (agent or broker) and the certificate holder.
A certificate of insurance isn't part of a policy and doesn't add, remove or alter any provision of an insurance contract.
The middle portion of the certificate contains a summary of the insured's liability coverages, a description of the insured's operations, and the name and address of the certificate holder. The certificate describes the four categories of liability coverage outlined below. For each type of coverage, the certificate lists the policy number and effective dates. It also indicates whether the policy includes an additional insured or a waiver of subrogation.
If the insured has purchased commercial auto liability coverage, the certificate indicates the types of autos the policy covers. The options include “any auto”, “all owned autos”, “hired autos”, “scheduled autos”, and “non-owned autos”.
If the insured has an excess policy or an umbrella, the certificate shows the limits provided and any applicable retention or deductible. It also indicates whether the policy is written on a claims-made or occurrence form.
Issues With Additional Insureds
Problems can arise when a certificate misstates the coverages provided by a policy. Many misstatements that appear in certificates have to do with additional insureds.
When one business hires another to do some type of work, the hiring company often demands additional insured status on the other party's liability policy. In the Elite Estates example cited above, Elite has hired Pro Painting to paint the Verdant Villas apartment complex. Suppose the contract between the companies requires Pro Painting to provide additional insured coverage to Elite Estates. The painting contractor has provided a certificate stating that Elite Estates is an additional insured under Pro Painting's liability policy.
Pro Painting completes the work for Elite Estates. Six months later, Elite Estates is sued by a Verdant Villas tenant who was injured when a ladder Pro Painting was using fell on him. The tenant claims that Elite Estates is liable for his injury because it hired an incompetent contractor. Elite sends the suit to Pro painting, which forwards it to its insurer.
Pro Painting is shocked to discover that Elite Estates is not an insured under its liability policy. When Pro Painting's insurance agent issued the certificate he forgot to request an endorsement adding the property owner to the Pro Painting's policy as an insured.
The certificate Pro Painting provided to Elite Estates erroneously stated that the property owner was an additional insured under Pro Painting's policy. Will the claim against Elite be covered? The answer is probably no. A certificate is not an endorsement and does not change the policy. If a coverage described in a certificate is not contained in the policy, the insurer will not provide it.
The policy, not the certificate, dictates coverage.
Notice of Cancellation
If a policy listed on an insurance certificate is canceled before its expiration date, will the insurer notify the certificate holder? The answer depends on the language in the policy. The standard certificate of liability form states that if any of the policies listed in the certificate is canceled mid-term, notice will be delivered in accordance with the policy provisions. The cancellation provisions in a typical liability policy affords notice to “you” (the named insured) if the policy is canceled. Certificate holders will be provided notice of cancellation only if the policy states they will be notified.