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