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certificates of insurance

What are certificates of insurance and why are they important?

A certificate of insurance is usually a one-page document presented as proof that you carry insurance. It usually contains a summary of the kind of insurance you carry and the limits of damages and liability and other details.

In most cases, a certificate of insurance is provided by a contractor or vendor as a response to a line item in a contract. For example, if the building owner hires a contracting company that's going to do an extensive remodel of a building, the owner might ask for a certificate of insurance as a precondition to hiring the contracting company. In many cases, a small contractor or independent worker might be allowed to perform the work, but won't get paid until they produce a certificate of insurance.

The most important thing to know about certificates of insurance is that they are not a policy. They are simply short documents that summarize how much insurance is carried by a company or individual.

In some cases, certificates of insurance are prepared improperly - for example, they may be trying to show that insurance is available for losses or damages that are uninsurable, or they may imply requests that neither party can legally comply with. More commonly, some certificates of insurance might contain clauses that respond to completely impractical requests from a market standpoint.

One common example is for contracts to transfer risks and liabilities that are largely uninsurable - for example, they may require a contractor to be responsible for "ANY negligent acts, errors, or omissions," or "any and all liabilities" that result in "ANY claim, cost, expense, liability, penalty, or fine." Obviously, this kind of wording leaves a pretty wide open area that might adversely affect the way a contractor goes about his or her business.

The best thing to do is to talk to a professional insurance agent about a certificate of insurance. You want the right document prepared in response to the contract, and you need solid advice on what can and can't be met with insurance.

Please give us a call at 512-476-6566 and we'll be happy to review your situation.