Insurance Policy can Provide Rights to a Holder of a Certificate of Liability

A certificate of Insurance and the insurance policy are two separate documents. Often, business transactions require Certificates of liability insurance when two or more businesses work together on a joint project. This certificate of coverage is the best way to make sure that every participating member of the project has the proper insurance protection in place. But even though they are common today, still many business owners do not fully understand the limitations and function of these certificates. Some believe it is only a piece of paper that can certify the other partner is insured with the amount that complies with their agreement. However, knowing some of the facts can make your business transaction go smoother.

Purpose of Certificates

Generally, the purpose of insurance certificates is for one company to testify that it holds enough of a certain type of insurance that actually would satisfy another company’s requirements. A typical example is when a caterer is required to have enough insurance coverage to do business at a banquet hall. The banquet hall management may require the caterer to carry a specific type of coverage that may outline the types and limits of coverage it carries, including its policy numbers, effective and expiration dates, the names of the insurers and maybe more. The insurance certificates can confirm with the banquet hall management that the caterer is sufficiently covered by insurance.

Limitations of Certificates

As we have discussed in some of our articles in this site, the insurance certificates are not the insurance policies. However, they have some of the important information about the insurance policies, but do not carry legal weight. These certificates are often generated by insurance agents rather than by the insurers themselves. Therefore, they could contain omissions, misstatements and errors. A clear example would be a certificate that is presented with a $1,000,000 limit, while the policy has only a $500,000 limit. This error and misstatement will not however change what is on the insurance policy. It will maintain its $500,000 coverage.

Additional Insured Person or Business Establishment

There are times when certificates of liability also identify the holder as additional insured under the policy. In this situation, the holder the do have some rights over the insurance coverage. Once truly considered as an additional insured person or business establishment, the holder is entitled to receive indemnity payments from claims. The holder will be just like the primary insured person or business establishment.

Names of additional insured persons or business establishment must be endorsed onto the policy itself. Without the policy endorsement, the certificate will have no meaning. It has been recorded in some organizations that 36% of all errors and omissions involving certificates of liability of insurance have resulted from misrepresentations of additional insured individuals or establishments.

The Standard Insurance Certificate

The format of a standard certificate of liability contains wordings at the top;

“This certificate is issued as a matter of information only and confers no rights upon the certificate holder.”

Mark this as a notation in dealing with your business transaction.

There is also a disclaimer at the back portion of the standard certificate of liability which says;

“The Certificate of Insurance on the reverse side of this form does not constitute a contract. Nor does it affirmatively or negatively alter, extend or amend the coverage afforded by the policies listed thereon.”

As a rule of the thumb, always keep in mind that certificates do not extend rights to certificate holders unless it is endorsed on the insurance policy.