There’s a lot to stay on top of when managing certificates of insurance, whether you are in property management, commercial or residential construction. There are ways to stay on top of your certs without feeling completely overwhelmed. When managing certificates of insurance, it’s best to know how to guard against liability, assess the problem and be proactive in your solutions.
Managing Risk and Liability
If you’re in property management or in construction, you may know your real estate management/development/construction firm must be named as an additional insured on all of your tenants’, service companies’ (vendors’), and subcontractors’ insurance policies in order to protect your organization against risk and liability created by the negligent acts of your tenants, employees, service providers/vendors, or subcontractors.
Ensuring the proper coverage is in place and that you are in fact on the policy as an additional insured is critical to protect your organization through appropriate transference of risk and liability.
Assess The Problem
Most real estate management companies understand that they need to be listed as an additional insured with tenants, vendors, subs, etc. (“third parties”) and will establish a process to collect certificates of insurance from third parties, look at the dollar amounts on the form, see if they comply with the lease agreement or contract, file them and attempt to reach out again to get a new one before each policy expires. Unfortunately, this is not protection and the risk is financial loss through insurance claims against your organization because the proper coverage wasn’t in place, had been cancelled, reduced or expired.
The Truth about Certificates of Insurance
Certificates of Insurance are only valid the day they are issued – they are a snapshot in time. The policy holder can cancel coverage, neglect to pay their premium or alter coverage at any time without you being notified.
The new ACORD form contains the following language…
“Should any of the above described policies be cancelled before the expiration date of the policy thereof, notice will be delivered in accordance with the policy provisions.”
Policy provisions rarely require notice of cancellation or change in coverage notice to additional insured.
This certificate is issued as a matter of information only and confers not rights upon the certificate holder. This certificate does not affirmatively amend, extend or alter the coverage afforded by the policies below. This certificate of insurance does not constitute a contract between the issuing insurer(s), authorized representatives or producer, and the certificate holder.
As noted above, Certificates of Insurance convey no rights or privileges. Many organizations have the false perception that as long as they possess a Certificate of Insurance (a piece of paper that conveys no rights or privileges) they are protected.
There are many other issues with Certificates of Insurance that need to be considered including:
- Are there exceptions on the policy that are inconsistent with your contract/lease?
- Was the proper form used for the coverage you require?
- Do you require primary and non-contributory insurance and is it in force?
- Is there a waiver of subrogation?
- Do you have a physical endorsement to the policy?
If you want to manage certs on your own or internally, here are some quick tips that will make your administration of processes and certs a little easier.
- Clean up old contracts/leases – categorize risk
- Re-verify insurance coverage to ensure it is in force and in-line with contract requirements
- Strive for language that will accommodate for future market changes
- Rely on certificates for information only
- Obtain endorsement copies and documentation where necessary
- Create a list of the endorsements that have the coverage you need and a list of the ones that don’t