Certificates of Liability Insurance
A certificate of insurance serves as evidence of insurance coverage. It is most often requested as proof of liability insurance. A certificate is not part of a policy. It does not add, remove or alter any provisions of the insurance contract. It is simply a summary of a company’s insurance coverages. Contractors are often required to provide a certificate of liability insurance when they are hired to perform some type of work. Here is a typical scenario:
Elite Estates owns several commercial properties, including an apartment complex called Verdant Villas. Elliot, a manager at Elite Estates, thinks the complex is looking a bit dingy. He decides the buildings could use a coat of paint and contacts a painting contractor called Pro Painting.
Elliot prepares a contract that outlines some conditions the painting contractor must meet in order to be hired. One important requirement is liability insurance. Pro Painting must maintain a commercial general liability policy with a $1 million per occurrence limit and a $2 million general aggregate limit.
Peter, the owner of Pro Painting, signs the contract. However, his company cannot do any painting work until Peter presents Elliot with a certificate of liability insurance. The certificate will verify that Pro Painting has the liability coverages specified in the contract.
Certificates of insurance are normally provided by an insurance agent or broker. Most are issued on standard forms. While they are usually used as evidence of liability insurance, they may also be used as proof of other types of insurance. For instance, a building owner may be required to present the lender with a certificate of property insurance. Separate certificate forms are used for property and liability insurance.
The standard liability certificate contains separate sections for general liability, auto liability, umbrella liability, and workers compensation/employers liability. A liability certificate contains the type of information listed below. In this list, "insured" means the person or company that has been asked to provide the certificate. The certificate holder is the person or company that has requested the certificate.
- Insured's name and mailing address
- Name and mailing address of insured's insurance agent
- Name and contact information of the individual at the insurance agency who can answer questions
- The name of each insurer and its NAIC number (an identification number assigned by the National Association of Insurance Commissioners)
- A brief description of the insured's policies and the limits provided, by type of coverage. For example, the General Liability section lists the six separate limits provided by the insured's liability policy. It also indicates whether the insured's coverage applies on a claims-made or occurrence basis.
- If the insured has purchased commercial auto liability coverage, the certificate should indicate 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 umbrella policy, the certificate should show the limits it provides. It should also indicate whether the coverage applies on a claims-made or occurrence basis.
- No limit is listed for workers compensation coverage since state laws determine the benefits provided to injured workers. However, limits should be listed for employers liability coverage.
- A description of the operations the insured is performing
- The name and address of the certificate holder
- A statement outlining the insurer’s obligation, if any, to notify the certificate holder if the insured's insurance is canceled. This issue is explained in more detail below.
Additional Insured Status
Many business contracts require the insured to cover the certificate holder as an additional insured under the insured's liability policy. In this situation, the certificate holder may require a statement on the certificate that it is indeed covered under the insured's liability policy as an additional insured.
In the Elite Estates scenario outlined above, suppose that the contract between Elite and Pro Painting requires the painting company to insure Elite Estates as an additional insured under Pro Painting’s liability policy. Since additional insured status for Elite Estates is a requirement of the contract, Pro Painting must comply. Pro Painting’s insurance agent must request an endorsement under Pro’s liability policy that lists Elite as an additional insured.
Some liability policies contain language that automatically includes certain parties as additional insureds without the need for an endorsement. For example, suppose that Pro Painting's policy covers, as an insured, any person or organization for which Pro Painting is performing operations if Pro Painting has agreed in a written contract to include that party as an insured. Elite Estates meets this description. Thus, it should be covered automatically as an additional insured.
A Certificate is Not an Endorsement
Suppose that you have been asked to provide a certificate of liability insurance to XYZ Inc. You have also been asked to include XYZ Inc. as an additional insured under your liability policy. Your agent issues a certificate stating that XYZ Inc. is an additional insured under your policy. However, your agent neglects to request an additional insured endorsement from your insurer. Your policy does not contain any automatic additional insured language. No one notices the error.
Six months later XYZ Inc. is sued because of your negligence and demands coverage under your liability policy. Will XYZ be covered as an additional insured based on the statement in the certificate? The answer is probably not. A certificate is not an endorsement. It does not change the policy. If the coverage described in a certificate is not contained in the policy, the coverage is unlikely to be provided.
Notice of Cancellation
Until 2009, the standard form used to issue certificates of liability insurance contained a policy cancellation provision. This provision stated that if any of the policies listed in the certificate was canceled before its intended expiration date, the insurer would “endeavor” to notify the certificate holder a specified number of days in advance.
Numerous certificate holders believed that this wording ensured they would be notified if the policyholder's liability policy was canceled before its expiration date. However, many certificate holders were not notified when policies were canceled. Why? Insurers followed the cancellation provisions in the policy. Under the standard liability policy, only “you” (the named insured) receive notice if the policy is canceled.
The current form used for certificates of liability insurance 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. In other words, additional insureds will be provided notice of cancellation only if the policy states they will be notified.
Finally, many states have enacted legislation designed to standardize the use of certificates. These laws prohibit the use of certificates that include false or misleading information. Certificates that contain such information are not valid.