Certificates of Insurance Can Be Dangerous to Your Health: Know What They Are and What They Cover

By Richard Dahm Senior Risk Consultant, National Hospitality Division, Wells Fargo Insurance Services | February 15, 2010

Buying Business insurance for any business is a complicated process. Whether you're a small entity with one location or a multi-national corporation, insurance is never a topic of likeability. Encompassing a language of its own, insurance has defined itself to be understood only by the few and mostly by those that are in the industry or working directly for it. Those of us who have had the pleasure of learning about insurance have been educated more or less through the process of trial and error, prior claims and their brokers understanding of their clients need base. While the diversity of types insurance is endless, one common factor remains true with all businesses, the necessity to provide proof that they are in compliance with their insurance responsibilities. Whether it is workers compensation, general liability, directors and officers or property coverage, no business can escape the obligation to be able to produce a Certificate of Insurance. ** **

What exactly is a Certificate of Insurance?

A certificate of insurance is a separate document from an insurance policy. It summarizes the key elements of your insurance by verifying the types and amounts of coverage currently in place. The purpose of the certificate is to provide proof of compliance for your contractual obligations. While Certificates of Insurance at first glance may seem straightforward because the document is rather compact, elementary in nature and to the point in its summarization of your coverage, the importance and consideration for these documents are greatly overlooked in the purchasing process. Certificates are not the same as a policy and they do not offer any ability to modify a policy. Too often insurance contracts are purchased without the ability to be modified.

Key coverage such as additional insureds, waiver of subrogation and/or specific forms and endorsements are omitted from the decision process. Due to the omission of coverage, it leaves the insured with a useless policy or added costs that were not originally in the initial budget. Insureds as well as certificate holders often demand the need for specific language on their certificates. What they do not realize is that this language such as "additional insured", "waiver of subrogation" and others are a form of modification to their policy. In order to modify a certificate, a policy must be endorsed so that its coverage can be extended to the third party. This ultimately means that you are extending your coverage to include that of another party involved. This is usually the case when an organization is required to fulfill a contractual obligation. Whether you are a hotel, restaurant or contractor working on behalf of the hospitality industry, certificates are required and they must be considered in the purchasing process.

Certificate Claims

Each year thousands of certificates are issued many of which are either not needed or their language is inappropriate. Many times certificates will only be issued for a specific contract. However, it is common that an agent will automatically resend certificates of insurance for the renewing policy year without confirming if a certificate is still needed. Each year your broker or agent should confirm the validity of your certificate holder list. This is important because coverage should not be extended to another entity if you are no longer contractually obligated. Claims lodged against insurers and their agents are growing due to errors in the certificates' wordings.

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