If you are a builder or contractor working with many vendors, it is always a good idea to collect certificates of insurance (COI) as part of a successful risk management program.
Certificates of insurance are documents that give details about and provide proof of insurance. They are provided by insurance companies and exchanged between parties that are conducting business together.
It is also important to obtain COIs from your own business insurance so that you’re ready to provide this to your clients and business partners.
There are some key terms and information you’ll need to understand COI for businesses. In this blog, we’ll discuss when and why to get a COI, what a COI is and is not, and how managing COIs can be the difference between taking huge liability losses and protecting your business.
What is a Certificate of Insurance for Business?
A certificate of insurance, or certificate of liability insurance, is a document provided to a vendor or contractor by an insurance company proving they are covered by an insurance policy.
Click here to see an example of the ACORD 25 form. ACORD is a private organization involved in the insurance industry. Their form 25 is the standard form that COIs are issued on. ACORD does occasionally revise these forms as laws and regulations are updated or new factors must be considered.
Most commercial contracts involving construction will include language requiring one of the parties to accept liability in the event of mishaps. This contract language is generally satisfied with a COI.
In addition to a critical proof of liability insurance, a COI also serves as a useful reference document. A single-page summary, a COI is more convenient than an entire, bulky insurance policy, but still contains most of the important information necessary to manage risk.
This makes managing and organizing your COIs of crucial importance, especially if you’re working on a large project with many vendors. Keeping track of the information can be daunting, but we can help.
Why Do I Need a Certificate of Insurance?
A proper risk management program starts with knowledge. Knowing where you are vulnerable to liabilities is the only way to plan for and avoid them. As a risk management officer, or any business leader, it’s your job to manage the company’s risk at every turn. Keeping track of who and what is covered by which insurance policies is a key part of this task.
Collecting certificates of insurance is your best way to keep track of these vulnerabilities. COIs are broadly useful and short documents, generally only a single page in length. This makes them ideal for submitting proof of coverage to your clients and business partners.
A business COI will also provide documentation of:
- Policy Information (Policy Number, Name, Description, etc.)
- Effective Dates
- Coverage Limitations
- Information on Submitting Claims
- Name and Contact Information of the Insurer
- Name and Contact Information of the Insured
Crucially, a COI also generally specifies “other insured” parties, which are parties covered by the insurance but not obligated to pay its premiums. You would want to be under these other insured parties when requesting COIs from contractors or vendors.
During the construction process, it will often be necessary to provide proof that you are covered by an insurance policy. Moreover, it will also be necessary to prove that those working for you are also covered. This is where a COI comes into play.
How Do I Get a Certificate of Insurance?
COIs are produced by insurance companies. So, the first requirement of COI is to obtain business insurance if you don’t already have it.
If you have your own business insurance policy, you can contact them to get a copy of a COI. This is what you will give to potential business partners to prove your insured status. A COI should be a simple one-page document that your insurer can fax or email to you at no charge.
You will also collect COIs from the vendors you hire as well, for the same purpose. Not every project requires that your vendors produce COIs, but any project that could potentially increase your risk should be preceded by a COI.
When Should You Ask for a Certificate of Insurance?
You must always ask for a COI before a project begins. You don’t want work being done without proper liability protection.
If you need a COI for your own business insurance policy, it is best practice to acquire this from your insurer before contacting other parties. This is also a great practice to reassure your partners and clients of your reliability. Having all required documents, including COIs, will inspire confidence in your preparedness.
<H2>What is the Point of a Certificate of Insurance?
A certificate of insurance serves several purposes, from proof of insurance to policy information and effective dates.
By requiring COIs from all vendors and contractors you employ, you are doing the hard work of ensuring their coverage and your own financial security.
However, you are also ensuring that you have the proof for your own needs as well. Potential business partners will want to know you are covered, and more importantly, that you are diligent in making sure you are covered. A COI is your easiest method of providing this proof.
How Much Does a Certificate of Insurance Cost?
A certificate of insurance doesn’t cost anything. As long as you have insurance coverage, your insurer will produce a COI with no extra charge. Remember: a COI is just a document proving that you have insurance and detailing what is covered by it, it does not add, modify, or alter coverage in any way.
Pitfalls and Limitations of Certificates of Insurance
Though the COI is an extremely useful document, and one you will need to be intimately familiar with as a risk compliance officer, there are important things to know about what a COI does not do.
Most importantly, a COI is an informational document only (as explicitly stated on the ACORD 25 form). It does not create a contractual agreement between the two parties exchanging the document.
This means that information that is accurate when the COI is exchanged may become invalid later. Policies may be altered, canceled, or otherwise changed in any way, and a COI will not protect you from being blindsided by this.
For example, a COI for a policy that has already exhausted its coverage might provide a false sense of security: you assume you are covered but there is no money left to pay your claims. Similarly, a COI does not guarantee that the policy will not be canceled or altered after it’s issued, which could affect your liability.
Crucially, courts will generally enforce the language of the actual insurance policy instead of a COI.
What this all means is that, while a COI is a fantastic reference document, it’s not a catch-all. COIs require management, organization, and frequent reviews. However, once you’ve mastered the art of maintaining your COIs, your risk compliance will be made easier and more effective.
Our software can help you manage, search, organize, and track your COIs. Contact us to start your free trial.