Insureds often ask our loss prevention representatives if certificates of insurance are necessary. If your organization uses outside vendors/contractors or other groups use your facility for anything (snow removal, remodeling or repairs, special events, etc.), certificates of insurance are vitally important.What is it?
A certificate of insurance is a document prepared by a business’ insurance agent or insurance company that simply proves the contractor and/or vendor has insurance. This document should list the effective and expiration dates of the policy, the type of insurance provided, and the limits of insurance, or the maximum amount the insurance company will pay in the event of a loss.
Why does my organization need it?
These certificates are important to prove the outside vendor carries insurance. Your organization could be held responsible if the vendor doesn’t have coverage. Even if the vendor’s contract with your organization states there’s adequate insurance coverage, a certificate of insurance is proof of exactly how much coverage there is and if the policy is currently in force.
What should be on it?
Here are a few things to check on a certificate of insurance to ensure it’s adequate:
- Make sure the named insured matches the name of the company/outside vendor you’re working with.
- Check the coverage dates. If the policy expires and your organization is still using the vendor’s services beyond that date, you should request a new certificate.
- Ensure the policy includes, at a minimum, general liability and workers’ compensation insurance and that the limits are adequate. You should discuss this with your own insurance agent to determine adequate limits for each contractor.
- Require that your organization be named as an additional insured to further reduce your organization’s liability. The certificate should state that your organization is an additional insured and under what form. Just because the vendor hands you a certificate of insurance does not automatically mean that your organization is an additional insured on the policy!
What could happen if an organization doesn’t have one?
If an organization trusts an outside vendor or company and has worked with them in the past, it may seem easy to skip the certificate of insurance. Doing so, however, can result in serious consequences if there’s an accident. If the vendor isn’t properly insured, your organization might be next in line to pay for any damages/injuries.
For example, imagine your organization hires a contractor to help maintain your building’s sprinkler system. While the vendor is working in the ceiling, a heavy piece of equipment falls onto a customer below, causing serious injuries. The contractor’s insurance policy has lapsed, so your organization is now on the hook for all the damages incurred. A certificate of insurance is your reassurance that the vendor or contractor is insured and you’ll be protected in the event of an accident.