Certificates of Insurance
Certificates of Insurance and Confirmation of Coverage
As risk management practices have become more common in day to day business practices, misunderstandings are inevitable, particularly when new staff – both inside your organization, and in the general business community – take on risk management and administrative roles. This may be the case when it comes to the growing confusion over requests for insurance documents that either validate insurance coverage is in place or contractually transfers the risk from one party to another.
The main problem seems to stem from the increased awareness on the part of many organizations of the need to transfer risk to another party without a fundamental understanding of what this means and when it should be applied. When mixed in with the human factor of incorrect use of terminology, what should be a simple, effective business practice can quickly become a complex and inhibiting situation that is difficult to diffuse when both parties insist they require documents that may or may not be necessary and where neither party understands the purpose or application of the documents.
The two documents at the source of most of this misunderstanding are:
The following is an overview of what each document is and when it should or should not be used.
Confirmation of Coverage Certificate
What is it?
Simply put, this is a document that validates an insurance policy is in effect – it names the insured party, provides the policy number, effective and expiry date, and usually lists the insuring agreements (the coverage) that are in force and any applicable limits of insurance or deductibles that apply to the policy. It is also known as a Certificate of Insurance and is issued to your organization when premiums for the new policy period have been paid. In essence, it is your proof that you have insurance in place for your business activities.
When is it used?
- Your organization provides it to validate to another organization that you carry insurance to meet a contractual obligation (e.g. a lease that requires Tenant’s Legal Liability, to meet a condition for a business contract, etc.);
- Your organization provides it to validate that you carry an adequate limit of insurance to meet a contractual obligation (e.g. a clause that stipulates a minimum of $5 Million Liability coverage be carried, etc.)
- You request it from another party to validate that a contractor or service provider who will be working on your behalf, carries insurance as a condition of a contract, RFP or tender process.
- You request it from any organization, group or individual who wishes to use your premises or facilities as a permit holder to validate that they carry their own liability insurance.
Additional Insured Certificate
What is it?
This document is actually an ENDORSEMENT that amends your insurance policy to temporarily add a specified person or organization to be covered by your board’s insurance policy, usually for a specific event or activity. Most commercial insurers charge additional premiums to cover the extra risk associated with any outside party being insured, as often the actions of such a party are beyond the control of the original insured. Organizations need to be aware that when they request this endorsement to add another party, they are “lending” their insurance to that outside party who may not be familiar with or bound to your company’s rules, regulations, policies or procedures. By requesting this endorsement to be issued, your organization is accepting legal liability for the actions of that third party, and any claims arising out of these endorsements will impact your company’s loss experience and future premiums.
When is it used?
- Your organization provides this certificate when you wish to use the premises or facilities owned by another party for your business purposes or activities (e.g. employee fund raising booth at a shopping mall, use of a meeting hall for a business function or conferences, use of sports or recreational facilities for company organized activity, etc.);
- Your organization provides this certificate when your company is performing business related activities under contract on behalf of another organization (e.g. providing custodial services, security services, premises maintenance or repair, etc.)
- Your organization would request this certificate naming your company as an Additional Insured from any group or organization who wishes to use your premises or facilities for an event or activity which is directed and controlled by that group.
- Your organization would request this certificate naming your company as an Additional Insured from any contractor hired to provide services on your behalf (e.g. electrical, plumbing, construction, school bus operator, maintenance, etc.)
- Commonly mistaken for a request for a Confirmation of Coverage Certificate.
- Organizations or vendors who wish to provide services to your company but who do not have their own insurance. Organizations should not agree to extend their Liability coverage to outside organizations or individuals who do not carry insurance for their own business operations.
- Coop employers – employers participating in a curriculum based cooperative education or experiential learning program do not require an endorsement from the school board naming them as an additional insured. Employers under these programs are protected against employer’s liability under the WSIB coverage carried through the Ministry of Education and Training for any students working under the co-op program. If the school board is a member of the Ontario School Boards’ Insurance Exchange, the employer is automatically protected by the school board’s Liability policy for a coop student’s negligent acts that cause bodily injury or property damage during the placement at the employer’s location.
- Cases where contracts require both parties to obtain endorsements from each other naming the other party as an additional insured – this is unnecessary and redundant.
The concept of transferring risk remains a very effective tool to ensure that the risk is being borne by the party who has control over a premises or an activity that is taking place on the premises. Proper use of these endorsements will ensure that each party is fully informed of their responsibilities and accepting of the risks that go with them