If you’re a subcontractor on a larger project, you may be asked to enter into a contract that requires insurance coverage for any damages that may be sustained while working on that project. This usually means you’ll be asked for something called a certificate of insurance. So what is it, how is it used, and when is it necessary?
A certificate of insurance is not an insurance policy; it simply describes your policy to the other party, including particulars like effective date of coverage, types of insurance coverage, and the dollar amount of any liability.
Often the “certificate holder” (the party requesting the certificate) will ask to be added to your policy. This way if any damage or suit is incurred, both you and the certificate holder will be covered by your insurance. This is called “making an endorsement to the policy” (not “endorsing the certificate of insurance,” as it’s often mistakenly put).
There are a couple of examples where obtaining or providing a certificate of insurance makes sense. In one example, suppose you own a business and would like to rent office space. To protect himself from liability, the owner asks you for proof of insurance in the form of your certificate of insurance, and asks to be added to the policy. A few months later, someone is injured in your office and decides to sue both you and your landlord for damages. But since your landlord has been added to your policy, both of you should be safe from paying damages out of pocket.
One industry where certificates of insurance are commonly exchanged is the construction industry. These kinds of contracts actually require several specific types of insurance, policy limits, and “hold harmless” agreements.
Large contractors often keep these on file for the subcontractors they hire. If you’re a contractor requesting a certificate of insurance, you need to ensure all the information included is up to date and accurate. You should also be familiar with the policy’s limits, especially since you may end up sharing it with someone else! So check certificates carefully before beginning work. This way, there will be no surprise, extra or premium charges listed for missing Worker’s Compensation or General Liabilities.
How do you know when a certificate of insurance is necessary for a particular business contract? The easiest way to find out is by asking your insurance agent. And if you’re ever asked to provide a certificate of insurance, consult your agent for advice on modifying your plan so you’ll be well protected, “just in case.”