Certificates of Insurance – ahh the joys. If you are in business, more than likely you’ve run into the need to get or provide a certificate of insurance.
Certificates are a snapshot of certain liability coverage an entity has in force on the date the certificate is issued. They are not a promise of coverage – they are documentation of it.
Certificates can be a very useful, time-saving tool when used properly. It provides documentation to a business that the person they are hiring or who is using their property has the proper coverage in place in the event of a loss. This saves the entity in need of a certificate the hassle of getting a copy of someone else’s insurance policy and wading through it. However, as is often the case, when something is too easy, it can be taken advantage of.
Certificates have been the topic of debate for quite some time. The issue stems from certificate holders, those in need of the certificate, using it in a court of law to sue for coverage. This has forced the courts to rule on whether or not a certificate is a promise of coverage.
Although the courts have upheld that a certificate is not a promise of coverage, the use of a certificate with incorrect information on it being distributed has, at times, allowed the courts to rule that although the piece of paper doesn’t promise coverage, the intent behind it did.
In a nutshell, someone recorded incorrect information on a certificate. There was a loss that was not covered for the certificate holder. Wording added to the certificate implied the coverage would be provided although the insurance policies the certificate represented did not provide it. Courts ruled that coverage must be provided because the certificate holder had been misled, albeit unintentionally.
So – where does that leave the certificate of insurance? Several states around the country, including Iowa, have decided to take a stricter stand on how insurance companies and agents handle certificates. The Iowa Insurance Division issued a bulletin on 7/13/10 stating that no one should alter or misrepresent coverage on a certificate of insurance.
The format of the certificate was modified to allow previous wording to be replaced with check boxes. Furthermore, if a certificate holder needs more than what the format allows, policy documents must be sent. This effort was initiated to clarify the coverage being afforded certificate holders – to lessen confusion, to reduce the number of court cases.
Certificate holders run the gamut from acceptance to refusal of the new format and rules. This puts insurance agents in the position to balance what is legal and what is needed to keep their clients in business and happy.
Needless to say, certificates of insurance remain a thorny and, at times, confusing subject. When you need to request your agent to send a certificate of insurance for your project or event, remember your agent is protecting you when they will not give in to the demands of the holder to “have it the way we always used to”. With patience and time, this too shall pass.