What is a certificate of insurance?
Contracts are the cornerstone of sound business relationships. Many contracts contain a provision that requires the parties involved to prove they are insured. This provision is often met by use of a document called a certificate of insurance (COI). COIs are a key element of contractual risk transfer.* A COI issued by an insurer or authorized representative provides evidence that various types of general insurance coverages and limits have been purchased. The certificate, which includes pertinent information such as the contact information of the insured, agent, carrier, and person to whom the certificate is issued, will summarize the essential terms and conditions of the policy, such as effective dates, limits, and coverages. It is important to remember that the COI is evidence of insurance – it verifies the existence of an insurance policy and summarizes some key provisions and conditions of the insurance, however, it is not the insurance policy itself. The COI should also detail any special insurance requirements required by contract or agreement, such as the naming of additional insured† status for a certificate holder.
Why use certificates of insurance?
Convenience is the driving force behind COIs. It is easier to obtain, review, and store a COI than a certified copy of an insurance policy. No confidential or proprietary business information is included. It is customary for a COI to be issued on a standardized ACORD 25 form, which can simplify the review process for accuracy and conformance.
Things to note
- Is the certificate holder named as an additional insured?
- Is the certificate signed by the appropriate parties?
- Have the notice of cancellation provisions been reviewed for acceptability?
- Has the right of subrogation been waived‡?
- Is there a specific need to review the terms of the actual insurance policy itself?
- The COI should never be used to endorse a policy to add coverages such as a new Additional Insured, extend the cancellation period to provide additional notice than covered in the contract, or to add waiver of subrogation.
- In addition, the COI is meant to provide a snapshot of coverage on the day that it was issued. Coverages could immediately change following the issuance of the COI or the policy could be cancelled.
Things to remember
- A COI is for informational purposes only and does not constitute a contractual agreement between a certificate holder and the insurance company issuing the underlying policy. It contains limited information and the actual policy should be consulted to identify pertinent coverages and exclusions.
- The COI does not amend, extend, or alter the terms of the underlying insurance policy.
- A COI only confirms that coverages were in-force at the time the certificate was created; it does not guarantee that the insurance won’t be cancelled at a later date or that the limits will not be exhausted by claims.
Speak with your agent about how you can obtain a certificate of insurance.
- The Insurance and Risk Management Institute (IRMI), Glossary of Insurance and Risk Management Terms, https://www.irmi.com/glossary?taxonomy=alphanumeric&propertyName=tags&taxon=a.
*Contractual risk transfer (CRT). The process of using contracts to transfer risk from one party to another (ideally to the party in the best position to control or mitigate the risk).
†Additional insured. A named insured may choose to include or add to their policy another entity that is not automatically covered (i.e., named in the original policy). This additional insured status serves to ensure that the full rights and coverage provided under the policy are fully extended to the newly added insured(s).
‡Waiver of subrogation. An insurer has a legal right to pursue financial recovery of a loss it has paid through the process of subrogation. One of the major ways a party can avoid subrogation by an insurer is by including a waiver of subrogation in a contract. With a waiver of subrogation, the party voluntarily gives up their right to pursue recovery against another party as well as the right of the insurer to pursue recovery.
This material is provided for informational purposes only and does not provide any coverage or guarantee loss prevention. The examples in this material are provided as hypothetical and for illustration purposes only. The Hanover Insurance Company and its affiliates and subsidiaries (“The Hanover”) specifically disclaim any warranty or representation that acceptance of any recommendations contained herein will make any premises, or operation safe or in compliance with any law or regulation. By providing this information to you. The Hanover does not assume (and specifically disclaims) any duty, undertaking or responsibility to you. The decision to accept or implement any recommendation(s) or advice contained in this material must be made by you.