Most companies require their contractors or vendors to name themselves as an additional insured endorsement on their Commercial General Liability Policy (CGL).
However, to verify this information, many companies will simply:
On the surface, this may sound like a sufficient process. However, in many cases, this practice is not good enough to ensure coverage.
So what needs to be done in order to adequately ensure coverage?
In this article, we will answer:
In 2015, the International Risk Management Institute (IRMI) performed a study on a sample of COIs to evaluate the effectiveness of insurance certificate representation and reported coverage.
The results were shocking!
At face value, 100% of the certificates met the client’s requirements. However, when the actual policy was reviewed, only 10% of the certificates met insurance coverage requirements.
But why did only 10% of the samples meet COI requirements?
The reason is simple: blanket endorsements.
Generally speaking, blanket endorsements provide adequate protection for companies. Not to mention, they are also affordable options for contractors who work with several parties that may require an additional insured status.
In cases like these, the blanket additional insured endorsement or policy itself is not the problem. But rather, an issue with a contractor agreement – or, in some cases, the complete lack of a simple contractor agreement – may ultimately invalidate the coverage.
In other words, your contract might unintentionally invalidate your coverage.
That being said, blanket endorsements require a valid contract between the contractor and any parties that may require an additional insured status.
But what does an additional insured endorsement look like? Look no further. Keep reading to learn how to ensure adequate coverage with a valid contractor agreement.
While onboarding a new service contractor, follow these 4 simple steps to ensure your contract doesn’t unintentionally invalidate your coverage.
First things first, always be sure you have a written agreement with your contractor that requires you to be an additional insured on the CGL policy.
Note: it is also important to review agreements with contractors who may be on a legacy contract.
Next, make sure the agreement is under the company’s official name and not their dba.
An extra tip is to ensure the name on the agreement matches the one on the contractor’s W9. Why? Because more likely than not, the W9 has been verified through the IRS.
After placing the agreement under company name, authorize the agreement with an official, authorized signature.
Why is this important?
Many agreements have been invalidated simply because the individual who signed was not an authorized signer of the company.
In the case of a sole proprietor, he/she must sign themselves. On the other hand, in the case of signing with another corporation or business entity, check the Secretary of State website for a list of officers and ensure it is one of them who sign the agreement.
If there are any other parties that you require to be listed as an additional insured on the certificate, create a direct contract between them and the contractor as well.
This will keep everyone organized and well-informed.
By following these 4 simple steps, your company can go a long way to ensure that you are not the one that has to pay a claim when a contractor makes a mistake or causes unforeseen damage.
Founded in 2005, PlusOne Solutions is a Nationally Accredited Consumer Reporting Agency (CRA) that specializes in helping organizations with large networks of independent contractors mitigate risks through:
Contents are provided for information purposes only and should not be construed as legal advice. Users are reminded to seek legal counsel with respect to their obligations and use of PlusOne services.
Sara Everett joined PlusOne Solutions in 2013 and currently manages the Insurance & License Management and Badging Services for PlusOne. Sara and her team are responsible for managing tens of thousands of insurance policies and licenses on behalf of their clients.