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Certificates of Insurance: Proceed with Caution


Contractors and subcontractors are often required to present a certificate of insurance, or COI, as a condition of their engagement to prove they have the contractually required insurance to perform their scope of work. The COI is supposed to verify the existence of an insurance policy and summarize the policy’s key terms and conditions such as the policyholder's name, the policy's effective date, the type of coverage, policy limits, and other key elements of the policy.  Given the information represented on the face of the COI, this document is generally accepted as evidence of the providing party’s insurance coverage. But is it enough? 

Issues with a Certificate of Insurance

Unfortunately, statements on a COI do not necessarily ensure the insurance coverage that they describe will be in place at the time the coverage is needed. Worse yet, when presented with requests to enforce the terms of the purported coverage shown on a COI, a majority of courts have found that the recipient of the COI is not entitled to rely on the information contained in the COI. As such, if a dispute arises, the COI may not be worth the paper it is printed on.

While a COI can be a useful tool to provide an overview of key information that is found within an insurance policy, one of the primary issues with a COI is that it is merely a snapshot summary of coverage that exists on the date of the COI’s issuance and it may not include all relevant information. For example, after providing a COI, it is possible for the insurance coverage shown to be changed or canceled. Further, even if no changes are made after a COI is presented, the underlying insurance policy may include exclusions that limit, or even eliminate, insurance coverage that appears to be shown on the COI. For this reason, owners and general contractors need to use caution in evaluating and relying upon another party’s COI.

What Happens if the Certificate of Insurance is Wrong?

The significant majority of courts have held that there is no recourse for a party that relied on another party’s inaccurate or misleading COI. In fact, in many jurisdictions throughout the United States, the general rule is that a certificate of insurance is not legally binding and cannot create new coverage or legal obligations that are not set forth in the language of the insurance policy itself. Thus, although the COI may on its face appear to show that a subcontractor has the insurance coverage required, if the COI is inaccurate or incomplete, the general contractor is left with no remedy for such reliance.

Best Practices for Contractors to Minimize Risk Related to Certificates of Insurance

First, remember that COI’s are a representation of an insurance policy, not the insurance policy itself. For this reason, contractors should avoid solely relying on a COI and instead look to verify insurance coverage by obtaining an actual copy of the policy, including any addenda, declarations, or applicable endorsements, when possible. If you receive a copy of the insurance policy as requested, it is also important to be able to interpret and understand the underlying policy in such a way that you can confirm that the necessary coverage actually exists. 

Additionally, if you are a contractor that is faced with these situations frequently, there are ways to modify your contractual agreements to require additional information and notices that may help mitigate the risk of relying on COIs and/or issues that arise when dealing with uninsured or underinsured subcontractors. Thus, a review of your underlying agreements may be helpful to mitigate any risk relating to inaccurate or misleading COIs.

For further guidance on COIs, confirming coverage under an insurance policy, or best practices when reviewing and collecting COIs on a project, please do not hesitate to contact one of the members of Koley Jessen’s Construction Industry Practice area with any questions.

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