RISK MANAGEMENT
CERTIFICATES OF INSURANCE : ISSUES & ANSWERS
By : William C . Wilson , Jr ., CPCU , ARM , AIM , AAM
“ A certificate of insurance is a document issued by or on behalf of an insurance company to a third party who has not contracted with the insurer to purchase an insurance policy . The most common type of certificate is that provided for informational purposes to advise a third party of the existence and amount of insurance issued to the named insured .” ( Allan D . Windt , Insurance Claims and Disputes , 4th ed ., 2001 )
Such informational certificates are usually issued in conjunction with a contractual relationship between a thirdparty and the named insured , requiring that the named insured have a particular amount and type of insurance . Such requirements are prevalent in construction contracts with large contractors , government entities , and major corporations .
In addition to describing the insurance available to the named insured , a certificate may also convey information that the certificate holder is an additional insured under the policy issued to the named insured , giving the certificate holder some interest in the policy itself .
According to Black ’ s Law , a certificate of insurance is a “[ d ] ocument evidencing the fact that an insurance policy has been written and includes a statement of the coverage of the policy in general terms .” Certificates are simply snapshots of basic policy coverages and limits at the time of issuance of the certificate . Certificates cannot modify coverages or change the terms of the insurance contract .
According to one professional liability insurer , during the past year , E & O claims involving certificates of insurance have increased by 28 %. About 1 in 25 E & O claims now consists of a certificate of insurance . The two primary sources of certificate E & O claims are failure to add , or improperly identifying , additional insureds ( 36 %) and misrepresenting coverage on the certificate that doesn ’ t exist ( 21 %).
These statistics track closely with the experience of our Virtual University “ Ask an Expert ” service in answering dozens and dozens of questions about certificates over the past seven years . Our experience ( and the statistics ) seem to indicate three major recurring problems involving certificates of insurance :
1 . The unwillingness of insurers to provide notice to certificate holders of cancellation , despite the “ we will endeavor to ” language in most certificates of insurance .
2 . Onerous insurance requirements by large contractors , huge corporations , governmental / public entities , etc . that cannot be met by coverages typically available in the admitted marketplace .
3 . Certificate fraud by agents and insureds ( including the indication of coverages or conditions that don ’ t exist ) so an insured subcontractor can get a construction job or get paid for one .
The first problem above has existed for many years and is now being questioned in an ethical context . The other two problems represent an emerging issue that has become an increasing problem for agents and insureds alike .
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