If you own your own business or have entered into a bidding process on behalf of the firm you work for, chances are you have been asked to provide or obtain an insurance certificate. An insurance certificate should be required from people and organizations that you enter into agreements with or who supply products and services to you.
The Purpose of an Insurance Certificate
The purpose is of an insurance certificate is really two-fold:
1. It provides proof of insurance coverage to someone other than the policyholder. The certificate contains all the relevant information that a third party might need to know about your insurance without releasing details of your coverage that they don’t need to be concerned with.
2. It can confer certain rights to the certificate holder.
Terms Relating to Insurance Certificates
If a client has presented you with a request for an Insurance Certificate, you may notice some or all of the following terms used for items they wish to have included. Below is a brief explanation of what each of these terms refers to and the potential impact to your policy:
Essentially, an additional insured is covered under your policy as if they were the primary named insured.
TIP: As a policy holder, you will want to be specific as to which location or project the additional insured relates to. This limits their protection under your policy to only those liabilities directly related to the projects you have with them.
Also note that there is a difference between an “additional insured” and an “additional named insured”. The latter provides the listed party with access to modify, add, or delete the coverage they are named in connection to. Essentially, your policy is now their policy.
This clause means that, should a loss occur, all insureds under the policy, including additional insureds, are treated as though separate policies exist for each. It is important to have a cross liability clause added to insurance certificates for liability insurance if it is not already build into the policy wording. It is meant to protect both parties in the event there is a conflict between the parties and one has to defend against another.
NOTE: In the event one party does something that violates a term of the policy and/or would otherwise void the coverage afforded under the policy, the other party is not denied coverage for their liability as long as they have not violated a term themselves.
A legal clause that allows the injured party in a civil lawsuit to recover 100% of the compensation due for injuries or damage from a liable party who is able to pay, regardless of the degree of that party’s negligence. Essentially, it separates responsibility for causing an injury/damage from the responsibility to compensate for that injury/damage.
NOTE: This means that even though you may be 1% liable for an injury or property damage, a court can force you to pay 100% of the damages should the other negligent parties be uninsured or otherwise financially unable to pay for their portion of the damages.
Waiver of Subrogation:
The intentional waiver of any right to recover damages from another party who may be responsible.
NOTE: To our knowledge, insurers will not provide this clause as it prevents them from seeking reimbursement for defense costs incurred as a result of defending you from a lawsuit brought on by someone else’s negligence.
Notice of Cancellation Clause:
The insurer will notify the listed third policy of the policy for which the insurance certificate was issued. Most standard clauses provide for 15 days via registered mail, however depending on the nature of the policy and reason for cancellation, 30 days via registered mail may be provided on an exception basis.
Other Aspects of Insurance Certificates
There are several other important aspects of insurance certificates that you should be aware of:
Coverages and Limits
When requesting a certificate of having one issued, ensure your coverages and limits are appropriate for the situation.
Check the effective dates, or policy term, on the certificate to make sure the dates cover the activities in question. Any time an activity or relationship will outlast the expiry date on the certificate, make sure to request a new one prior to expiry.
When dealing with multiple third parties, it is advisable to list the nature of the additional insured’s interest, or, in the event of multiple projects, your contribution and/or location specifics. This protects your policy from exposure to lawsuits that occur outside of your involvement with the project.