Certificate Holder vs. Additional Insured – Understanding Certificates of Insurance

Financial risk arising from unplanned accidents is a common occurrence in the world today.

In order to mitigate these risks and safeguard your business, a liability insurance policy is an important investment. Having a Commercial Liability Policy (CGL) on a Certificate of Insurance helps protect against the risks when working with contractor networks.

Companies who wish to contract with an independent contractor for their services will typically stipulate within the terms and conditions of their contract certain insurance requirements, such as requiring a policyholder to list them as an additional insured to their policy, to mitigate their risks in the event of a negligent incident committed by the independent contractor that has a financial impact (i.e. causes injury to a third party/customer or property damage) and a claim needs to be created against the contracted company’s (policyholder) general liability policy.

When going to verify proof of additional insured, it is common for people to confuse what would be considered a certificate holder rather than an additional insured on a certificate of insurance. Knowing the difference is important.

What’s the difference between the certificate holder and additional insured?

 

The certificate holder named on a policy will receive a copy of the policyholder’s certificate of insurance (COI), which verifies insurance and usually contains information on the type and limits of coverage.  The entity will be listed in the CERTIFICATE HOLDER section of the COI.

Certificate holders are more likely to be notified or receive notifications in case of changes, annual renewal, or cancellation of the policy by the policyholder.  However, they are not authorized to make a claim under the policy.

The entity that does have the rights and authorization to make a claim is the additional insured.  On COI’s, additional insured entities are indicated in these two ways:  By an X or checkmark in the ADDL INSR box on the General Liability section of the COI and/or the additional insured entity is named in the DESCRIPTION OF OPERATIONS section.

As an additional insured, you may receive notices that coverage has been cancelled from the insurance carrier. However, you are more likely to receive notices of cancellation and changes in coverage from the insurance broker if you are a certificate holder as well.

Additional Insured vs. Certificate Holder infographic

 

 

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 Solutions services.


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4 Steps to Ensure Better Coverage of Additional Insured Endorsement

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:

  • Collect the Certificate of Insurance (COI)
  • Confirm the amounts
  • Ensure the additional insured box is checked or that their name as additional insured is in the description box of the ACORD form

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:

  • Why many additional insured practices don’t meet COI requirements
  • How a blanket additional insured endorsement might unintentionally invalidate coverage
  • How to better ensure coverage on a contractual agreement in 4 easy steps

Certificate of Insurance Misrepresentation  

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.

Blanket Additional Insured Endorsement: What to Look For

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.

4 Tips on How to Ensure Coverage on a Contract 

While onboarding a new service contractor, follow these 4 simple steps to ensure your contract doesn’t unintentionally invalidate your coverage.

1. Make a Written Agreement

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. 

2. Place Agreement Under Company Name

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. 

3. Authorize the Agreement

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. 

4. Proof Additional Insured Parties

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.

Ensure Your Company’s Coverage with PlusOne Solutions

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:

  • Document management
  • Insurance
  • Background screening
  • Drug testing
  • Compliance with the Fair Credit Reporting Act and EEOC guidelines
  • License management
  • Badging/credentialing

 

For more information on how best to manage your contractor insurance requirements or to learn more about our Insurance Management Services, please contact us

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 Solutions services.