Certificates of Insurance: Why They Matter

By: Yusuf Williams, CIP, CRM
Manager, Insurance & Risk Management
City of Mississauga

Certificates of insurance can be the bane of a buyer’s existence, or they can be just another box checked off on the to do list of a procurement. Either way, no matter how much attention they get, the necessity of getting a valid certificate of insurance (COI) remains a high priority. This article will explore why COIs are important and why they should matter to buyers.

What is a Certificate of Insurance?

A COI serves as documented proof of insurance coverage held by vendors, detailing policy information, coverage limits, and effective and expiry dates. COIs are issued by insurance companies or insurance brokers, both needing their representative issuing the COI to be licensed to provide confirmation of insurance coverage.

COIs are not contracts. They are confirmatory documents that detail coverage within an insurance contract between the vendor and their insurer(s). COIs should not be negotiated, as they are meant to verify insurance terms already set out in the procurement contract.

For buyers, these documents are vital for verifying a vendor’s financial responsibility and mitigating risks associated with contractual agreements.

What value does it have?

Having a valid COI, that confirms your organization is an additional insured on the appropriate insurance policy(ies), brings tremendous value to your organization. It assures you have the appropriate evidence of insurance to prove to the vendor’s insurer that your organization is afforded coverage under the vendor’s insurance policy(ies). This can often avoid disputes between your organization and the vendor, as you can bypass the vendor and go straight to the insurer for the coverage afforded to your organization under the procurement contract.

The COI is also the documented confirmation that the indemnity agreement in the procurement contract has a degree of financial backing to mitigate a variety of the responsibilities for which the vendor could be held accountable.

Outside of the specific protection clauses in a procurement contract, the indemnification clause is the catch-all clause that holds a vendor responsible for their actions. In order for the indemnification clause to have weight to it, there needs to be financial backing behind it. Insurance clauses will often accompany indemnification clauses as insurance products provide a good amount of the financial backing needed to strengthen the protections of an indemnification clause. Understanding this, it is evident that securing a valid COI is a high priority and can prove useful in times where vendors need to protect your organization from their actions.

What is a valid COI?

A valid COI is one that carries all the information needed for you to access a vendor’s insurance policy(ies). It is also one that carries the necessary authority to have recourse against a vendor’s insurer or insurance broker.

The information needed on a valid COI is as follows:

1. The named insured – vendor’s name (and address) matching the name in the procurement contract.
2. Location and description of work or services to which the COI applies – also use a specific procurement number or identifier, if applicable.
3. Type of insurance – (e.g. CGL) matching the insurance required in the procurement contract.
4. Policy number(s) and Insurer(s) – for the insurance policy(ies) requested.
5. Effective and Expiry Dates – of the policy(ies) requested.
6. Insurance policy limits – as requested.
7. Confirmation of Additional Insured status for your organization (the Certificate Holder) and any other entity required, e.g. consultant.
8. Name and contact information of the licensed representative of the insurance broker or insurance company filling out the COI.
9. Signature of the licensed representative.
10. Date the COI was signed.
11. Stamp (ink or digital) or letterhead of the insurance brokerage or insurance company authorizing the COI.

Having the above information authorized by a licensed insurer or broker provides a degree of recourse, as the licensed agent is confirming the insurance coverage required is valid for the purposes documented in the COI. If an incident occurs and the coverage confirmed by the licensed agent is not in fact in place, the insurer or brokerage could face an Errors & Omissions claim for any loss your organization could incur as a result of having relied on the licensed agent’s confirmation.

What to watch out for?

The nature of business carries adversarial relationships and when dealing with vendors and insurance companies this kind of relationship rears its head often. Though frustrating, these adversarial relationships are understandable as each entity involved in a dispute or potential dispute is trying to protect their own interests.

That being said, here are some things to watch out for when managing the collection of COIs:

1. Vendors filling out COIs themselves – this should never be accepted unless the vendor is an insurer or broker.
2. Vendors providing COIs from previous projects, not specific to your procurement.
3. Vendors not sharing the procurement contract with their insurer or broker.
4. Insurers or brokers editing terms or negotiating terms in your organization’s COI template.
5. Insurers licensed outside of Ontario or your respective jurisdictions – here’s a list of insurers licensed in Ontario – http://licensingcomplaintofficers.fsco.gov.on.ca/LicClass/eng/lic_companies_class.aspx
6. Insurers or brokers using their own COI template or the ACORD or CSIO COI templates – very important to watch for their disclaimers.

Touching on disclaimers more closely, the disclaimers often found on most third-party COIs read as, “This certificate is issued as a matter of information only and confers no rights upon the certificate holder.”, or “This certificate does not affirmatively amend, extend or alter the coverage afforded by the policies below.”.

Identifying these disclaimers on a COI you are reviewing renders the COI effectively useless in looking to the vendor’s policy for coverage and holding the insurer accountable for providing your organization a defense, as an additional insured.

Disclaimers may be understandable from an insurer’s point of view, given they have thousands of clients, and they would not be able to commit policy limits to every client’s activities and contracts at the same time. This is where the adversarial relationship appears, as buyers need this commitment to ensure their organization is protected, irrespective of the insurer’s need to protect themselves.

What are some best practices?

We know how important COIs are and what to watch out for. Now, we can explore what some best practices are in collecting the COIs we need. Some practices buyers can introduce to their procurement process are as follows:

1. Connecting with your Risk Management staff, or those you turn to for assistance in insurance matters to create a COI template for your organization to use when accepting proof of insurance.
2. Training staff on the need for and importance of COIs and how to review them. Collaborate with Risk Management staff, or those you turn to for assistance in insurance mattersto develop and deliver training.
3. Creating a checklist identifying what to look for when reviewing any COI.
4. Identifying the insurance requirements of the procurement contract for bidders early in the process – adding it to the Bidder Information Package if possible.
5. Providing a guide for vendors to pass onto their insurer or broker on how to complete your organization’s COI template.
6. Using a buying software or developing a system to track COI expiry dates.
7. Developing an additional clause in your insurance requirements, in the Standard Terms & Conditions, that reaffirms that the acceptance of a COI does not constitute a waiver of rights – this ensures that even if a COI with errors was accepted by staff, it would not be seen as evidence that favours the insurer or broker.

In summary, we have explored what COIs are, the value they bring, what information a valid COI contains, what to watch out for, and some best practices for managing the collection of COIs. Whether this information is new to you or is a refresher, the takeaway is that COIs are an organization’s evidence that their indemnity agreement with a vendor has financial backing and the insurance provided can be relied on in times of need. Buyers are an organization’s first line of defense in enforcing contractual protections of a procurement, further proving why COIs matter.