Blades, Crout & Proulx LLC                          Risk Management Consultants - Established 1926   148 West End Avenue, ...
Blades, Crout & Proulx LLC                          Risk Management Consultants - Established 1926   148 West End Avenue, ...
Blades, Crout & Proulx LLC                          Risk Management Consultants - Established 1926   148 West End Avenue, ...
Blades, Crout & Proulx LLCRisk Management Consultants - Established 1926    Please visit our web site – www.bladesrisk.com
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The Dangers of Relying on Certificates of Insurance

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The Dangers of Relying on Certificates of Insurance

  1. 1. Blades, Crout & Proulx LLC Risk Management Consultants - Established 1926 148 West End Avenue, 2nd Floor, Somerville, New Jersey 08876 | Phone: 908-687-3735 | Fax: 908-687-2040 The Dangers of Relying on a Certificate of Insurance AloneWhat is a Certificate of Insurance? It is no more than a snap shot on the day the certificate isprinted of the following information. o Types of insurance policies in effect (General Liability, Automobile, Umbrella, Workers’ Compensation, etc.) o Insurance Companies issuing those policies o Effective dates of coverage o Limits of insurance o the Insured o the insurance agent o Certificate Holder o Check boxes for additional insured and waiver of subrogation o Lots of language to advise the certificate holders that at the end of the day, a certificate is a piece of paper with ink on it and has no value. What is the purpose of requesting a certificate of Insurance?There are two primary reasons for asking for a certificate. 1. To prove that a subcontractor has the insurance coverages and limits required. 2. Peace of mind for the General Contractor (GC)/Owner evidencing that they have coverage on the policy as an “Additional Insured” (AI). So how does the insurance/risk manager know the above are being met?One of the many shortcomings of a certificate of insurance is its failure to show what the AIwording is and to what extent (if any) the certificate holder is listed as an AI. There are hundredsof versions of “additional insured” endorsements and all are not created equal. The InsuranceServices Office (ISO) standard “blanket additional insured” endorsement will be automaticallytriggered if there is a written agreement between two parties requiring the GC/Owner be namedas an AI on the subcontractor’s commercial general liability (CGL) policy. Most carriers haveadopted some variation of the standard ISO “blanket additional insured” to free up underwritingoffices from having to individually underwrite each request for additional insured status. Thisoften has not proven to be a positive situation for the GC/Owner seeking to be protected asadditional insured under someone else’s insurance policy.The problems we see with these various blanket additional insured endorsements are numerous.Most insurance companies have adopted only parts of the ISO standard wording and crafted it tobe even less favorable and reduce the coverage grant typically seen on a standard ISO AIendorsement. Please visit our web site – www.bladesrisk.com
  2. 2. Blades, Crout & Proulx LLC Risk Management Consultants - Established 1926 148 West End Avenue, 2nd Floor, Somerville, New Jersey 08876 | Phone: 908-687-3735 | Fax: 908-687-2040 For example, even in the ISO standard blanket AI, there is a requirement that two parties have agreed in writing for the coverage trigger. Very often a construction contract seeks indemnification through various tiers of owners/GC’s, and there are several contracts in play at the same time. Does the owner have a contract with the subcontractor’s sub? How is it possible for the lowest tier subcontractor to have a written agreement with the project owner? Keep in mind, the coverage trigger for the Owner as an AI, requires a written agreement between the two parties. Case law has already ruled against the owner and GC seeking protection under the AI in this situation.Another shortcoming of certificate is the absence of disclosing coverage restrictions that manyinsurance companies have added to insurance policies. Some examples of serious potentialrestrictions of coverage in an insurance policy commonly seen include, cross suits exclusions,redefining an insured contract under contractual liability, warranty of subcontracted work, andsharing of other insurance clauses. Any of these changes in an insurance policy can spelldisaster for the upstream GC/Owner. There is no way to know if these hidden bombs existsimply by obtaining a certificate of insurance. These types of changes are incorporated intoinsurance policies by standard on nonstandard insurance companies alike. It doesn’t matter ifthey are small regional carriers or national carriers, most carriers have AI forms that are notfavorable and may prove to be unenforceable if the restrictive terms of the endorsements are notmet. It is not safe to assume that a subcontractor, not matter how large or with what insurancecompany they have their insurance with does not have one or more of these harmfulendorsements or exclusions that may preclude coverage to the GC/Owner. There is no way toknow simply by collecting a certificate of insurance without other documentation, even if thecertificate states that the certificate holder and other entities are listed as AI. A New EraTimes have changed. In today’s insurance world, astute risk and insurance managers can nolonger accept certificates of insurance without requiring the actual or specimen AI forms andcross referencing them for compliance with insurance requirements in the contract with thesubcontractor. In addition, insurance and risk managers should be reviewing the CGL list offorms and endorsements to identify any potential problematic endorsements and/or exclusionsthat insurance policy and are not reflected on the certificates of insurance which may potentiallydeny coverage of the GC/Owner seeking coverage under the subcontractor’s insurance policy.Even then, greater controls need to be exhibited when the subcontractor uses a subcontractorunder their own contract. Please visit our web site – www.bladesrisk.com
  3. 3. Blades, Crout & Proulx LLC Risk Management Consultants - Established 1926 148 West End Avenue, 2nd Floor, Somerville, New Jersey 08876 | Phone: 908-687-3735 | Fax: 908-687-2040Closing the loopholes in how a subcontractor’s CGL policy will respond as an additional insuredis an essential part of a sound risk management/ risk transfer plan. Closing these gaps requiresdiligence in reviewing the insurance policies that subcontractors and vendors have in place.Relying on the certificate alone is a dangerous and may not accomplish what the Owner/GCintended as part of the risk transfer plan. The time to negotiate the proper insurance coveragefrom your subcontractors is now, not when the claim occurs. In order to properly protect the“additional insured” status, one needs to have a uniform plan regarding procedures in theacceptance of the evidence of insurance. This procedure needs to include the subcontractoralong with downstream subcontractors to provide maximum protection upstream.Ronald G Hicks, CIC, CRISBlades, Crout, and Proulx, LLCRisk Management Consultant908-687-3735 x16 Please visit our web site – www.bladesrisk.com
  4. 4. Blades, Crout & Proulx LLCRisk Management Consultants - Established 1926 Please visit our web site – www.bladesrisk.com

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