Certificates of Insurance are Worthless

Businesses often rely on Certificates of Insurance, assuming that if their subcontractor provides one to them, then they can trust that the subcontractor has the proper insurance coverage and the project is sufficiently insured. Unfortunately, it is not that simple. If you rely on Certificates of Insurance alone, you might not have the protection you need.

Most people just glance at a Certificate of Insurance, but the multiple different boxes actually mean something. You need to know what information should be on a Certificate of Insurance if you are checking one.

Another thing you would notice taking a closer look at your COI is that it says it is for informational purposes and does not confer any rights. It is important to know that a COI does not change coverage and is not necessarily a guarantee. It is just a piece of paper describing the insurance policy. Read more about how COIs cannot change your coverage and about the legal reasons why a COI still offers some protection here.

It is also important to note that Certificates of Insurance only pertain to liability insurance, it does not state anything about property insurance or other kinds of insurance.  If you are receiving a Certificate of Insurance that shows equipment, vehicles, or buildings, the insurance agent sending the form probably needs to go back to insurance school and learn the proper way to do things!

Further, even with regards to liability insurance, at best, Certificate of Insurance is really just a statement that the person has an insurance policy at the time the certificate is issued.  At worst, and unfortunately often, it is a forgery.

You always want to be sure to get the certificate directly from the agent, not the subcontractor. You also want to be able to spot signs of a fake certificate and we have a complete blog on "How to Spot a Fake Certificate" right here. A Certificate of Insurance can not and should not state the details of the policy. Thus it is important to check the policy language itself.

One particular area that is critical to check is to see what exactly the policy says about being additional insured. Additional insured is important to protecting you from lawsuits because of mistakes your subcontractor made.

Most people also don’t realize that just because you have a Certificate of Insurance does not mean that you will be informed if the policy is canceled.

A Certificate of Insurance can be helpful, in that it can confirm that the person in question actually has an insurance policy. However, you need to carefully evaluate a COI and not trust them too much.

Need to know more details about what kind of insurance you need to be safe?  A great place to start is our blog "What is a Certificate?  The Best Place to Start Learning". Want clarification about how to check someone's insurance policy to ensure they are sufficiently insured? Reach out to us, we are happy to help!

If you have any questions, don't hesitate to contact Veritas Risk Management at (423) 292-4142.

Veritas Risk Management, Inc. offers proactive risk management services covering a wide variety of topics. Veritas Risk Management, Inc. does not engage in the practice of law, accounting, or tax consulting.  We encourage everyone to consult with his or her own professional advisor for details concerning his or her specific facts, situations, and circumstances.

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