Black’s Law Dictionary defines a Certificate of Insurance as a “[d]ocument
evidencing fact that an insurance policy has been written and includes a
statement of the coverage in the policy in general terms.” But for those wanting
to be added as an additional insured, the certificate is almost always
meaningless without the actual insurance policy being endorsed. And that is
where many companies run into trouble.
For some reason, the business community believes Certificates of Insurance
are ironclad proof that another entity either has the purported insurance
coverage, or worse, has added the company as an additional insured. Many
lawyers, and a number of courts, don’t believe these certificates are worth the
paper they’re printed on.
As one commentator noted, “the issuance of certificates is one of the more
dangerous documents that float between insureds, insurers, and a myriad of third
parties.” The reason for the danger is that when there is a conflict or
discrepancy between a certificate and the actual policy, the latter controls.
Remember, the policy can be changed without any consent from the certificate
Generally, these documents are mere evidence of the insurance coverage the
policyholder has at the very moment the certificate is issued. Insurance
companies almost universally do not issue these certificates, and many times do
not know they have been issued. If the insurance is cancelled the next day, the
certificate is meaningless.
Even more dangerous are companies that rely on these documents as proof
they’ve been added as an additional insured to another’s insurance policy. The
standard ACORD form states that the certificate cannot extend or alter the
coverage. The normal procedure requires the broker to submit a request to the
insurer to add an entity as an additional insured, which then endorses the
policy. Without the endorsement, your chances of being an additional insured are
slim, regardless of what your contract may require or what the certificate may
say. In short, the only safe thing is to demand to see the policy and
On the flip side, many businesses find it burdensome to add entities as
additional insureds to their policies. They simply call their broker and ask to
have the opposing business added, receive a Certificate of Insurance, and then
forward it to that entity.
For example, a commercial property owner is repairing fire damage. In
negotiating a construction contract, it asks the general contractor to add it as
an additional insured on the general contractor’s liability policy. The
contractor has a lot of projects and handles such requests often, which poses a
problem to have its insurance policy endorsed each time to add the new entities.
A lot can slip through the “due diligence” cracks in this process. One answer is
to purchase insurance that contains a “Blanket Additional Insured” endorsement.
These endorsements allow the policyholder to basically add an additional
insured to the policy automatically when it is required by the business
contract. In the example above, if the contract between the owner and general
contractor requires the contractor to add the owner as an additional insured,
and the contractor has a Blanket Additional Insured endorsement, then the owner
is automatically added to the policy as an additional insured.
Here is an example of such policy language:
WHO IS AN INSURED – is amended to include any person or organization that
you agree in a ‘written contract requiring insurance’ to include as an
additional insured on this Coverage part . . .
Thus, with the Blanket Additional Insured endorsement, it’s the contractual
language that adds the additional insured. There is no need to rely on the
broker, and ultimately the insurer, to issue a new endorsement specifically
adding a new entity each time. This prevents the contractor from having to
request that the insurer add such parties every time additional insured status
is requested, and it prevents potential errors in accomplishing that task among
the policyholder, broker/agent, and insurance company.
It is critical to note that when being added as an additional insured in such
situations, you are added and insured only for liability based on the named
insured’s acts or omissions. The Blanket Additional Insured endorsement does not
allow a company to be added to another’s insurance policy in an effort to
provide protection for its own primary negligence.
Thus, the protection is for when the additional insured is sued for vicarious
liability scenarios based on the acts of the named insured. This prevents
companies from getting added to another’s liability insurance, and in essence,
obtaining free insurance coverage. Companies, such as the property owner in the
example, still need their own liability insurance to provide coverage for their
own primary acts that result in a loss.
Those requesting to be added as additional insureds with a Blanket
endorsement should beware and still request to see the actual endorsement. This
is critical as there are additional terms within the endorsement affecting
coverage of the company being added. For instance, the Blanket endorsement may
contain terms making the coverage excess over any valid and collectible other
insurance. However, the endorsement may allow the named insured’s coverage to
remain primary for the additional insured, if the contract between the two
businesses requires such a layering.
Another concern is that a Blanket endorsement may impose standard conditions
on the additional insured to follow in order to invoke the insurance coverage.
Thus, the additional insured is responsible to (1) give written notice of an
occurrence; (2) send notice of a lawsuit brought against it that may be covered;
(3) cooperate with the investigation, settlement or defense of the case; and (4)
possibly tender the defense of the lawsuit to any other insurance company that
may owe coverage.
Many ways exist for a company to prevent finding out it doesn’t have coverage
through proper drafting of contracts and the requisite level of follow up.
First, the entity being added as an additional insured shouldn’t rely on the
certificate as the sole source of evidence. As noted above, you should demand to
see the endorsement issued by the insurer, even when a Blanket endorsement is
Contract language requiring an additional insured status should be clear and
track the requirements of the endorsement. The careful company negotiates the
level of insurance coverage required, includes a provision that the endorsement
(or even the whole policy) must be provided – not just a certificate, and
doesn’t try to claim indemnity provisions for claims insurance won’t cover. An
ounce of prevention and some upfront effort is a small price to pay to prevent a
costly insurance coverage fight after the loss.
Lastly, a program should be put in place for someone in your company to track
Certificates of Insurance, or that function should be outsourced. When your
project is ongoing past the expiration date of insurance as noted on the
certificate, someone needs to follow up to ensure that the insurance is renewed
and your company is again added as an additional insured on the policy. There
are plenty of lawsuits where the insurance was not renewed, no one checks, and a
loss occurs. Surprise, there is no insurance available.
For more information on insurance requirements involving additional insured
issues or losses, please contact the authors.