A construction certificate of insurance is a document that serves as proof of insurance policy. It also serves as proof of coverage. It provides other information about the policy such as the limits of coverage, who or what entity is covered, the name of the policyholder and insurer, as well as the effective dates of the coverage.
Here is an example of COI insurance, courtesy of Cornell University.
In construction, certificates of insurance are obtained by the main builder or owner of the project. For example, a contractor might get hired to build a building. This contractor will provide a COI to the building’s owner, and also collect COIs from any vendors he outsources to.
For example, let’s say the building contractor hired an electrician who is covered under an insurance policy. Depending on the nature of the project, the contractor may request a COI from the electrician which would prove that the contractor would be covered if a 3rd party sues the electrician.
This guide will go into more detail about exactly what COI is and why it is a good idea to obtain one.
Frequently Asked Questions About COI for Construction
Here are some quick facts about COIs for construction to get you started.
1. What Does a Certificate of Insurance Do?
A certificate of insurance (COI) provides proof that the holder is covered under an insurance policy, as well as a snapshot of the policy itself, containing information about the policy limits, policy terms, and policy holder’s information.
It is distinct from a simple proof of insurance document in that it contains precise wording concerning “others insured” by the policy. These other insured parties are not responsible for the premium but will still be covered in the event of a lawsuit or any liability. They also will not have permission to alter the terms of the insurance coverage.
2. What Is a COI for Construction?
A COI for construction protects the owner of a construction project if one of the vendors or contractors working for them incurs liability. It is generally in addition to the insurance policy owned by the building’s owner. COIs are provided by vendors to the people who hire them.
3. Why Are Certificates of Insurance Important?
COIs are important tools to keep track of insurance coverages and liabilities. They are the best way to prepare to transfer loss in the event of liability. They also serve as extremely useful reference documents.
4. When Should You Ask for a Certificate of Insurance?
Always request a COI before a vendor or contractor starts working. Anytime a contractor or vendor performs work that increases your liability, you should obtain a COI.
The Difference Between a COI and Insurance
Before we go further, there is one important distinction to make between COI and insurance.
While an electrician’s insurance policy may or may not already cover the contractor who hires them for work, the contractor may not always need a COI. COIs are necessary in any situation where the owner’s liability could increase. If a COI is not needed, a builder may just request to see proof of the electrician’s insurance policy. This would not be the same as requesting a COI.
A COI is a document that will have wording explicitly including the contractor in the coverage as “other insured.” With other insured status, the contractor will be covered under the insurance policy, but will not be responsible for the premium, nor will they have the ability to make changes to the coverage.
As stated above, a contractor’s COI will also contain key information about the coverage such as effective date, policy limits, policyholder, and insurer information.
Why Do You Need a COI?
There are several important reasons why obtaining a COI might be right for your situation.
1. Lower Your Liability
A COI may cover you before your own insurance is required to. In these situations, your premiums and reputation with the insurance company will benefit because you were already covered. Proper risk management is all about transferring liability. Don’t fail to plan for this important possibility.
2. Convenient Access to Coverage Information
A COI is a handy reference document. They will help you understand what you have covered and where you’re exposed. Keeping and documenting a record of the COIs you’ve requested is the best way to manage your risk.
3. Quick Proof of Insurance
It may be necessary to provide a summary or proof of insurance to another party. A COI is a perfect choice of document for this purpose. COIs can quickly prove insured status without the need for an entire insurance policy that may take up hundreds of pages.
4. Helps You Know Which Vendors to Trust
It may be necessary to work with several vendors on a single project. Without an organized way to track what services are covered and where your true liabilities are, sorting through contractors could become a real headache. Documenting and managing your list of COIs from your vendors will keep you on top of your liability and leave you in the best position to transfer loss in the event of an accident.
Key Terms to be Familiar With
Here are some key terms and definitions surrounding construction COIs that you should know:
Builder’s Risk Insurance
Broadly, builder’s risk insurance is a policy that protects the building’s owner from liability during construction. A builder’s risk policy protects things like materials, supplies, and equipment from common liability issues like fire, weather, theft, or vandalism.
COIs, like insurance policies, can list certain exclusions which can limit or eliminate coverage for certain items. Common exclusions are things like poor workmanship, mold, pollution, or damage earth setting, sinking, or cracking. Reviewing the exclusions for each of your COIs is key to a successful risk management program.
In the context of construction COIs, subrogation is a legal tool that gives insurance companies the right to pursue third parties that may have caused the liability they had to pay-out. Essentially, if your insurance pays on liability incurred by one of your vendors, they may sue the vendor to recover their losses.
Challenges When Tracking Construction COIs, and How We Can Help
Clearly, COIs are something you’re going to need to be very familiar with in order to successfully manage your construction risks. If you fail to collect COIs when you should or fail to properly manage the ones you do have, you are increasing the risk to your project, and potentially even your business.
The above guide serves as an introduction to the concept, but there are many more obstacles to consider in the world of COI management, including:
- Keeping Track of Expiration Dates
- Managing Hundreds of Pages of Documents
- Accurately Assessing Risk
- Quickly Accessing and Identifying Key Information
- Reviewing Each COI Thoroughly to Determine Your Risk
Becoming comfortable with all of this information will take time and experience. Along the way, we can help break subjects down and make your life easier. Consider investing in a COI management platform to manage your company’s risk compliance.
Interested in learning more about the most common certificates of insurance? Check out our 5 most common COI list.
A COI management platform, like the one we offer, can help you keep track of all of this important information. START Your 14 Day Free Trial today to get started.