Where do I start?
So you’ve gone through the process of obtaining Certificates of Insurance from all your subcontractors/vendors/franchisees/tenants. What’s next? You want to review them, right? You’re probably thinking ‘Where do I start’? Start at the beginning! Let’s take a look at one of the very first boxes at the top of an ACORD Certificate of Insurance: the INSURED box.
This is the place where the preparer of the Certificate lists the individual/entity that “owns” the Insurance Policy. The Insurance term for this concept is “Named Insured”. When an entity is looking to purchase a commercial insurance policy, an application is filled out – either by the insurance Agent, or the entity themselves. The information that is given at that time (for our purposes, the “Legal entity” name) is what is used on the Declarations page of the Insurance Policy that tells us “WHO” the Insurance Company has entered into an agreement with. (As we all know, an Insurance Policy is actually a contract)
Why does this matter?
The information that is given here is important for many reasons. Ideally, it should reflect (without variation) the exact name of the individual/entity that is listed on your agreement (subcontract, franchise agreement, lease, etc.). There is always the possibility of a slight variation. For example the Named Insured could be listed as Thompson’s Home Improvement, Inc. and your agreement says Thompson’s Home Improvement LLC. The difference here is the type of business entity – a “corporation” (Inc.) vs. a “limited liability corporation” (LLC). You may also receive a certificate from Thompson’s and the name in the INSURED box reads “Mark Thompson” or another name altogether; that could be problematic. In order for Insurance coverage to apply when a claim is brought forth, the entity/individual against whom the claim is filed MUST match the Named Insured on the Policy or coverage will not apply. Making sure the Named Insured matches the name in your contract can be critical!
The Insuring Agreement in most Insurance Policies read as follows: “We will pay those sums that the insured becomes legally obligated to pay…” And it also says: “Throughout this policy the words “you” and “your” refer to the Named Insured shown in the Declarations…” In this example, if your contract is with Thompson’s Home Improvement LLC, and the Insurance policy evidenced on the certificate lists Mark Thompson as the Named Insured, the policy will only cover Mark Thompson and not Thompson’s Home Improvement LLC. If a claim arises that references Thompson’s Home Improvement only, the policy in place would NOT respond because the coverage only extends to the Named Insured shown in the Declarations.
Make it a habit.
Now that you’ve got a little insurance knowledge under your belt, use it. Make a habit of (at the very least) double checking your certificates against your written agreements (subcontracts, franchise agreements, leases, etc.) If the information is incorrect, let the other party know that it needs to be addressed. The INSURED box contains some very important information that will save your organization some hardship in the long run. It doesn’t take long, and the benefit of ensuring that your business is properly protected is priceless.
This blog is the first in a series of topics that will teach you how to review certificates of insurance like a “pro”. Stay tuned for our next installment – “Tip #2 – Insurer(s) Affording Coverage”.
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