What is a Certificate of Insurance?

When does a Business need a Certificate?

A certificate of insurance is a document that is used to provide info about specific insurance coverages. The certificate is issued to one entity and provides information about the insurance coverages another entity has secured. The certificates are usually required as part of a contract between a business, a contractor, and a subcontractor. A certificate of insurance can be offered for General Liability, Business Auto, Umbrella, and Workers Compensation.

Certificate of Insurance

What is Included with a Certificate?

The certificate of insurance includes the type of insurance coverage that has been secured, the limits of those policies, and the named insured. The certificate will also include whether there is an Additional Insured or Waiver of Subrogation associated with any of the policies included in the certificate. It should include detailed information about the company or person who receives the certificate that includes full address, contact name, email address, phone number, and fax number. When requesting a certificate be sent to another entity, the more information you provide the better.

Who Might need a Certificate of Insurance?

Typically a certificate of insurance is needed when a business hires a general contractor for a job or a contractor hires a subcontractor to perform a specific part of a job. The certificate is provided as proof the business or the general contractor made sure the contractor or subcontractor they are interacting with has coverage in place at the time the work was done. It is important to always ask a contractor for a new certificate every time you work with them. Just because someone had coverage in place in the past does not mean they still have coverage. If a business or a general contractor hires a business who does not have proper coverage in place, the business or general contractor will take on the liability for damages in most instances.

What a Certificate Holder Needs to Know?

Certificates of Insurance are not common for most people in most walks of life. Unless you work in accounting, make purchasing decisions for your company, manage promotional events, or oversee contractors; you have probably never seen a certificate of insurance. A certificate of insurance is a document used to provide information about specific insurance coverages secured by one person within a contract. The certificate verifies insurance coverage has been secured, the types of coverage secured, and the limits of those policies. Also, it will include the insurance carrier, the policy number, the named insured, and the policy effective dates. Now that you know what a certificate of insurance is, here are some tips to remember when you are a certificate holder.

Business Meeting with a certificate holder.

Who is the Certificate Holder?

Being a certificate holder means that you are given proof that insurance is in effect. One of the most common examples of a certificate holder is when a business partners with contractors on a project and it is part of the contract for the contractor to carry their own particular coverage. Here are some additional examples of the types of businesses who frequently need to have certificate holders:

Food Truck
Yoga Instructor
Promotional Events
Owner/Operator Truck Drivers
Lawncare/Landscaping Companies
Maintenance/Janitorial Services Companies

What coverage does the Certificate Holder have?

One common misconception about a certificate holder is that they are not covered under the policy mentioned in the certificate. The certificate is just verification that the other party in the transaction has the required coverage. The person, people, or business covered under the policy is provided on the certificate. It may include both the named insured and the additional insured depending upon the specifics of each policy.

Engineering Contractors need to have a certificate holder when entering into a contract.

What Other Parties are Involved with a Certificate of Insurance?

The holder of a certificate of insurance is a third party to the insurance relationship. The insurance carrier and the named insured are the two primary parties involved with the insurance coverage. An additional insured can be added if it is necessary. Partnering with an independent insurance agent is the best way to determine how to best navigate these issues.

What Types of Coverage Frequently Need a Certificate Holder

General Liability

General Liability Insurance needs to be provided to a ceritificate holder because it is the primary coverage that protects the business or person from third party liabilities for damages. This is essential when hiring contractors, because if a business hires contractors and fails to make sure the contractor has adequate insurance, the business can be liable for damages caused by the contractor.

Business Auto

Business owners who have employees who operate a motor vehicle as part of their job need to secure proper insurance. If the business owns the vehicles being used the policy is commercial auto. If the employee is driving their personal vehicle or a vehicle rented by the business, the correct policy is hired and non owned auto. This may be needed when a business is providing transportation for a special event like a limousine driver for a wedding.

Umbrella Coverage

Umbrella Insurance Coverage is also referred to as Excess Liability Coverage. Umbrella Insurance provides additional liability coverage above the limits of other existing policies. A certificate holder may need umbrella coverage added to the certificate because the contract requires a certain level of insurance limit for the contract to be valid.

Workers Compensation & Employers’ Liability

Workers’ Compensation Insurance is often referred to as the ‘Exclusive Remedy‘. It is called the ‘Exclusive Remedy’ because the coverage provides medical expenses and some lost wages for employees who are injured on the job. Employers benefit from the peace of mind they cannot be sued for injuries to employees who are hurt because of normal business operations. A Certificate Might be requested because the state laws and regulations require contractors to carry workers comp coverage in order to engage in certain types of work or contracts. The certificate proves the certificate holder made sure the contractor was up to date on all necessary coverages.

What is an Additional Insured?

According to the Insurance and Risk Management Institute (IRMI), an Additional Insured is, ‘A person or organization not automatically included as an insured under an insurance policy who is included or added as an insured under the policy at the request of the named insured‘. Now let me try to help you understand what that means in layman’s terms. This refers to any person who is not the policyholder, but is covered by an insurance policy. This coverage may be limited to a single event like a wedding, or it could last the lifetime of the policy like when a contractor who will be working for the business throughout the entire year. Thie first and most important thing for anyone to understand are the three different entities involved in a certificate of insurance. Those three entities are the additional insured, the certificate holder, and the policy holder. Here is a brief description of each entity and when it is best to add an Additional Insured or use a Waiver of Subrogation.

Additional Insured listed on a certificate of insurance.

Entities to an Insurance Agreement

Policy Holder:

The policy holder of an insurance policy is the person or business whose name is on the policy. It is important to distinguish this person from the name insured. The named insured is the person or business the policy is purchased to cover.

Additional Insured:

A person or organization that is added to an insurance policy and that person or organization enjoys the benefits of being insured under the policy. This coverage is in addition to the person or organization who originally purchased the insurance policy. The additional insured is named on a certificate of insurance. They only have a certificate if you send them a copy.

Certificate Holder:

The certificate holder is the entity that is provided a certificate of insurance as evidence of the insurance maintained by another entity. In its most simple form, a certificate of insurance is proof of insurance. The certificate holder is holding the certificate of insurance proves a business made sure to check the insurance coverages of contractors they partner with.

Digital picture of a certificate.

When Should Someone Add An Additional Insured?

One of the most common examples of when is a landlord of a commercial building. Landlords commonly require tennants to add the landlord under their insurance policies in order to lease the facility. Another good reason to be add is your business rents a piece of equipment from another business. You may want to add the other business as an additional under your insurance policies involving the equipment.

Additional Insured or Waiver of Subrogation

My Customer Service Representative (CSR) and I see a ton of requests for a Certificate of Insurance. Many of our clients do not understand what a Certificate Holder is or what being an additional insured means. I want to describe the differences between additional insured and a certificate holder. I want to explain this because, many clients don’t understand why an Additional Insured cannot be named on a workers comp policy. These same clients do not understand why the same person can be named on Liability Policies. Well I am going to shed some light on this situation. Here are four common terms that will help a business owner through the process.

Certified, additional insured, waiver of subrogation.

Certificate of Insurance:

A certificate of insurance is a document issued by an insurance company to verify insurance coverage to another person. The document tells what coverage is secured and under what specific conditions grated to the listed individuals. The document lists the effective date of the policy and the type of insurance coverage secured. Also, a certificate of insurance includes the limits of liability and the dollar amount of coverage. It is important to understand the holder of the certificate is not covered under the policy. The certificate serves as proof the holder made sure the person they are interacting with secured coverage.

Additional Insured:

When an insurance professional refers to an additional insured, they are referring to a type of status associated with General Liability Insurance Policies. Those policies provide coverage to other individuals or a group of individuals who were not initially named on the policy. After endorsement, the additional insured will be protected under the named insurer’s policy. They can file a claim in the event they are sued. Additional Insured is available on General Liability, Auto Liability and Umbrella Liability.

Certificate Holder:

A certificate holder is an individual or entity that is named on the certificate of insurance. When named on the certificate, they are notified when coverage is cancelled prior to the renewal date. This is needed in the event a business is partnering with a contractor or another business and that business does not hold the necessary coverage for the business interaction. No coverage protection under the contractor’s policies is provided to a Certificate Holder.

Waiver of Subrogation:

A Waiver of Subrogation means the insurance carrier agrees to relinquish any right to recover damages if it is determined in the course of investigating the claim that the client or one of the client’s employees was responsible for the loss. An insurance carrier may reserve the “right of subrogation” in the event of a loss. This means the company may choose to take action to recover the amount of a claim paid to a covered insured, if the loss was caused by a third party.

Waiver of Subrogation is available on General Liability, Auto Liability, Umbrella Liability and Workers Compensation. A Waiver of Subrogation provision prevents an insurance company (who steps into the shoes of the insured after it pays a loss) from suing the other party to the contract. This is likely the party who caused the loss. Moreover, Waiver of Subrogation provisions found in contracts are generally upheld by Courts.

When a contractor works another person’s property, there are risks involved. Contractors can damage personal property or be injured while performing work. Companies and individuals that hire contractors want to be certain they will not be held liable for injuries, damages or substandard work. For this reason, they will frequently request to see a certificate of insurance from those contractors.

In my experience, most client’s call and request an additional insured to be added to a work comp policy. An Additional Insured cannot be added to a Workers Compensation Policy. As stated above, an Additional Insured is naming someone else on a policy and a Work Comp Policy is written to cover injured employees. Workers Comp does not cover another company. The alternative to this issue would be requesting a Waiver of Subrogation. If you are a sub contractor and you are working with a larger company requesting a Waiver of Subrogation, it is important to make sure you the contractor understand what you are being asked to waive.

If your company hires subcontractors, it’s important to get a certificate of insurance from every subcontractor. Even if you trust your subcontractors. For example, if you have worked with these contractors in the past you need to get updated certificates. Even if you knew the to have insurance in the past they may not have it now. A business owner should submit a request for a certificate each time they hire a contractor. This insures they have proper insurance. Proper insurance at the time you hired them. Doing this can prevent a scenario where you inadvertently take on the risks associated with the work your subcontractors perform.

The content of My Insurance Question is created by the experts at The Insurance Shop LLC. The Insurance Shop is an independent insurance agency that was founded in 2005. Over the past decade and a half, the agents at The Insurance Shop have developed relationships with more then a dozen insurance carriers. These carriers give their agents the ability to shop your policy around and make the carriers compete for your business. If you are looking for a better value when renewing your commercial insurance package, let us shop insurance so you don’t have to. Give us a call today at 800-800-4864.