Westfield Insurance on risk management Featured

8:00pm EDT May 26, 2008

You think your suppliers and business

partners have the proper insurance, but

can you prove it? Obtaining certificates of insurance from anyone whose product or

service could contribute to the filing of a business claim documents that you’re covered.

“Certificates provide evidence of insurance

if you need to reach out to that insurance in

the event of a claim,” says Jim Montgomery,

business sector leader in the commercial

underwriting office at Westfield Insurance.

Smart Business spoke with Montgomery

about using certificates of insurance as part

of your risk management strategy.

What is the purpose of these certificates?

Certificates of insurance are primarily used

in place of complete copies of insurance policies to provide concise, inexpensive evidence of insurance. They provide a more efficient method of conveying information in

one page as opposed to a full copy of the contract, which can be 40 or 50 pages long. The

certificate is a broad generalization of the

insurance coverage carried by the provider

of the certificate. It lists the insurance company or companies and the type of coverage,

such as property, general liability, business

auto coverage, workers’ compensation, etc.

It may also list some of the policy endorsements that extend or limit coverage.

What are the consequences of not having

them on file?

It is important for business owners to know

the extent of their financial responsibility in

the normal flow of business. A seller of a

product made by a third party is not normally responsible for failure of the product if it

causes injury. But if the actual manufacturer

of the product does not have insurance, as

evidenced by a certificate of insurance provided to the seller, the seller may have to

assume that financial responsibility. Companies can still attempt to press a claim against

a business that originally caused the issue.

But without the proper documentation that

includes details about the carrier and the coverage, the attempt to transfer risk could fail

or prove very time-consuming or costly. This

could not only add significant costs related

to a particular incident but also increase expenses to the insurance carrier, which could

lead to higher premiums over time.

Who needs to have them on file?

Evidence of insurance is an important consideration for any business, so all companies

should have these documents on file.

Restaurants serving food need to know their

food providers have the appropriate insurance in the event of a claim involving food

that made someone ill. Manufacturers need

to know their raw material suppliers have

appropriate coverage for the products that

they deliver. Developers of a building project

need to be certain the general contractor

responsible for completing the project and

working with subcontractors has the coverage required by the construction agreement.

When should companies request them?

Certificates should be requested at the very

start of a business relationship where one

party provides a product or service to another party. It is important to understand the

types and limits of insurance available to the

provider in these relationships. This is especially important if there is a formal contract

or purchase order that requires specific

insurance coverages. Obtaining a certificate

of insurance could become part of the procedures for finalizing contracts in a company.

Also, business owners who request certificates of insurance should do so with the

agreement that a replacement certificate will

be sent each year on the expiration date of

the insurance policy. Receiving an updated

certificate lets companies know that the

proper insurance is still in effect and alerts

them to changes in policies, limits and any

other significant modifications to coverage.

Who can issue certificates of insurance?

Insurance agents or brokers representing

their policyholders can issue them. The insurance carrier has no responsibility for issuing

these documents, so it’s very important that

businesses take a proactive approach to

requesting them from any businesses or individuals that provide products or services.

Can certificates be issued electronically?

Yes. There are a number of programs

offered by independent vendors or agency

management systems that will assist in the

electronic management of issued certificates.

What should companies do in addition to

requesting a certificate?

It is important for any party to the certificate process to understand the potential limitations. A certificate will only acknowledge

the coverage currently on an insurance policy. If an agreement is signed between two

parties there may be additional insurance

requirements. Business owners should make

their insurance advisers aware of contracts

or agreements so the proper coverage on

both ends is in place.

JIM MONTGOMERY is business sector leader in the commercial underwriting office at Westfield Insurance. Reach him at

JimMontgomery@westfieldgrp.com or (330) 887-0642. In business for more than 160 years, Westfield Insurance provides commercial

and personal insurance services to customers in 18 states. Represented by leading independent insurance agencies, the product we offer

is peace of mind and our promise of protection is supported by a commitment to service excellence. For more information, visit