Are Certificates of Insurance Enough?
Contracts usually require contractors and subcontractors to carry certain types of insurance with stipulated coverage limits. In most of the contracts that come across my desk, the owner or contractor simply require the contractor or subcontractor to provide a certificate of insurance to confirm and verify that the required insurance coverages are in place. If the coverage types and amounts are checked off and in the correct amounts, the owner or contractor files the certificate away, secure in the knowledge that the insurance is in place. Or at least, they think they are secure.
Unfortunately, the sense of security is false. Holding a certificate of insurance in no way guarantees you that the coverage is in place. If you look at the current version of the ACORD 25 (2016/03) Certificate of Insurance, you will see that the ACORD form includes the following disclaimers:
THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AFFIRMATIVELY OR NEGATIVELY 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 REPRESENTATIVE OR PRODUCER, AND THE CERTIFICATE HOLDER.
IMPORTANT: If the certificate holder is an ADDITIONAL INSURED, the policy(ies) must have ADDITIONAL INSURED provisions or be endorsed. If SUBROGATION IS WAIVED, subject to the terms and conditions of the policy, certain policies may require an endorsement. A statement on this certificate does not confer rights to the certificate holder in lieu of such endorsement(s).
THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED. NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES. LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS.
Due to these disclaimers, courts in numerous jurisdictions have held that you cannot rely on a certificate of insurance. While an incorrect or fraudulent insurance certificate may give you a claim against an insurance agent, or a breach of contract claim against the contractor or subcontractor who didn’t obtain the required insurance coverages, the potential recovery from such claims can pale in comparison to the liability arising from uninsured claims for bodily injury or property damage.
Given that it is not reasonable to rely on certificates of insurance, I am now recommending that my clients take reasonable steps to obtain copies of the insurance policies and all required endorsements, especially additional insured endorsements. I get push back on this recommendation because it does impose additional administrative burdens on the contractor or owner. However, these administrative burdens are a small price to pay when you are potentially faced with substantial claims and little or no insurance to cover those claims.