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What the Hell is a Certificate of Insurance and Why Should I Care? Part 1 of 3

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In its simplest form, a COI is a single sheet document that describes the insurance coverage of a contractor. It includes such details as the insurance carrier(s), policy term, limits of coverage, the agent providing the coverage, notice of cancellation provisions and other pertinent coverage details.

Unfortunately, insurance policies have become very complex documents and it is impossible to represent them properly on a single sheet of paper. (As I wrote that last sentence, I realized that maybe that's the problem. The COI form has not kept pace with the complexity of construction contracts.)

Maybe at this point you say, "Big Deal! I've been providing/receiving COIs forever and it hasn't hurt me yet." I'll promise you this. It will if you don't change and you should care because your business is at stake. Giving or receiving a bad COI is like the iceberg was to the Titanic. By the time the problem is spotted, the disaster (uncovered claim) has already occurred.

Here's what a COI won't tell you:

• Whether one or more of the insurance companies being used is financially unsound
• Almost 100% of the time, one or more parties are required to be added as Additional Insureds on one or more policies. In most cases, a COI won't tell you if the right Additional Insured endorsement has been used. There used to be one or two of these endorsements. Now there are dozens.
  
• If coverage is required to be kept in place for one or more years after project completion and you don't get a new COI every year, you won't know if the party providing the COI has maintained the required coverage.
  
• Specialty coverages like pollution, professional and builders risk are all written on non-standard forms. A simple COI tells you nothing other than the limit. The limit is meaningless if the coverage is non-existent due to exclusions.
  
• Lastly, but maybe most importantly, nothing on the COI will tell you whether the coverage is in compliance with the contract specification. Only a trained human being can tell you that.

In my next post I'll describe the three reasons all contractors struggle with COIs.