Guidelines for Construction Companies Effectively Using Certificates of Insurance

A certificate of insurance is a document verifying the existence of insurance. Certificates of insurance are commonly issued free of charge by insurance carriers, agents and brokers when requested by their Insureds. These certificates offer a summary of the insurance policies held by the insured. While this summary is for information purposes only, reviewing and tracking certificates of insurance is the most effective way for companies and businesses to determine whether the insured has acceptable insurance coverage.

For example, if you are a general contractor considering hiring an electrical contractor for work on a project, you would want to ensure that the electrical contractor has the correct insurance in place before hiring this subcontractor for work on the project. Failure to review and determine acceptable insurance coverage could result in catastrophic economic losses for your company. Severe property damage, personal injury, or death on a construction site could easily bring economic ruin to those financially responsible. Owners, contractors, and subcontractors who enter into construction contracts owe each other the mutual obligation of providing insurance to cover certain specified risks.

The American Institute of Architects (AIA) has issued various documents with guidelines for contractual work that many construction insurers have adopted. Within these guidelines, there should be 30 days written notice of cancellation of policy. All insurance and bonds should be in force before any construction is undertaken at the jobsite. Owners and contractors should both carry liability insurance, and the owner is also required to carry property insurance.

When accepting insurance certificates, there should be no confusion as to what job or operations a certificate applies. This could be clarified through a citation in the description block of the certificate of the contract number or job location. Many contractors do not provide renewal certificates in a timely fashion as policies expire. This may potentially mean a time when no coverage is in force. To safely avoid this problem, require contractors to provide a renewal certificate at least fifteen (15) days before expiration. Request that you are added to the insured’s liability policy as an Additional Insured through a policy endorsement (having this noted on the certificate is not sufficient – a policy endorsement is required). There should be no special limitations on an additional insured status.

When receiving a certificate of insurance, it should be reviewed and compared to your company’s insurance requirements. Avoid contracting with subcontractors or sub-tiers that do not have proper insurance coverage.

References: Kahn, S. P. (1993, November.) Contractual risk transfer: Passing the hot potato without getting burned. Symposium conducted at the Annual Meeting of the School Business Officials International, Boston, Massachusetts.