The Role and Content of a Certificate of Insurance (COI)

Regardless of the industry in which a business operates, it will likely need to rely on third parties at some point to meet specific business needs. No matter whom you work with, business agreements with contractors and vendors can expose your company to various risks that should be addressed through insurance.

However, when considering contractual risks, securing your own insurance coverage is not enough. It is equally important to ensure that your business partners are properly protected. This is particularly important because your business could be held responsible for damages arising from an incident involving a contractor or vendor.

To protect themselves against these risks, many organizations use certificates of insurance, commonly known as COIs.

What Is a Certificate of Insurance?

One of the primary ways organizations manage and review their partners’ insurance coverage is through COIs. Although valuable, the COI is often misunderstood within the insurance industry. It is used in a wide range of commercial relationships and essentially serves as evidence that a particular party has a valid insurance policy.

Contracts may require partners and suppliers to maintain insurance coverage, but coverage requirements can change quickly, making regular policy reviews necessary. In addition, contractors and suppliers may not always be forthcoming about the risk-management measures they have in place, potentially leading a business to mistakenly believe it is adequately protected.

Often only a few pages long, a COI is a summary document issued on behalf of an insurance company. It identifies the insurer and the insured and outlines essential terms and conditions, policy limits and the policy period.

A COI also contains qualifying language stating that the document is provided for informational purposes only. Therefore, a COI is not the legal equivalent of a contract or the actual insurance policy.

The Purpose of a COI

For an insured party, a COI serves as proof of coverage that can be provided quickly and efficiently to customers, contractors and other third parties. It also indicates that the insured has the financial resources to protect those who may suffer harm as a result of its actions.

It is essential for a business to obtain a COI from every contractor or third party involved in a project. Even if the business has worked with and trusts these parties, obtaining a COI helps prevent the organization from unintentionally assuming risks associated with the work of subcontractors and vendors.

A COI should be requested before allowing a contractor to perform work on your property or on your behalf. This can benefit your business in several ways:

• A COI can prevent your company from assuming unnecessary risks if the contractor is responsible for a loss but does not have adequate insurance.
• A COI can provide protection if a contractor is injured on your property while performing work.
• A COI can help ensure that your organization is compensated if contracted work is performed improperly or is not completed.

Although collecting COIs is an important risk-management strategy, several administrative considerations must also be kept in mind.

Effective COI Management

Managing COIs can create a significant administrative burden. Businesses should establish procedures for effectively collecting, reviewing and maintaining these documents. Many organizations automate as much of the process as possible by using systems that provide alerts when a required COI is no longer valid.

When managing COIs, it is also important to ask the following questions:

• Is the COI provided in the proper format?
• Is the company named on the COI the same company named in the contract?
• Was the certificate issued by a reputable insurance company?
• Has the COI been signed by a representative of the insurance company or agency?
• Are the types and limits of insurance listed on the form equal to or greater than those required under the contract?
• Are specific policy numbers listed on the certificate?
• Are the coverage dates appropriate for the work being performed?
• Does the COI include a notice-of-cancellation provision, and is that provision acceptable?
• Does the COI reflect any special insurance requirements specified by your organization?
• Do you have written agreements with every third party you work with, either through an annual contract covering all work or a separate contract for each project?
• Are the files properly organized, and do they include the contracts, COIs and any additional endorsements?
• Is there a system in place, such as a certificate management system, to track expiration dates?

Securing the appropriate insurance policies, specifying insurance requirements in every contract and requiring COIs can provide peace of mind for all parties involved. However, obtaining and managing COIs can be complicated, making it important to seek assistance from an experienced insurance broker.