You Have a Certificate of Insurance On File… Is Your Organization Covered?

What happens if your organization has a certificate of insurance (COI) on file for all of your third party vendors and subcontractors, but you don’t have the contract? How can you be sure your organization is covered when it comes to proper coverage and compliance of all of your workers?

Your compliance team may believe that having a certificate of insurance on file is enough to guarantee coverage, but that’s not actually true. Does your staff know what to look for to ensure your organization is covered? In this article, we’ll take a look at why COIs don’t guarantee coverage, and why reviewing contracts and endorsements are critical.

A Certificate of Insurance Doesn’t Guarantee Coverage

Generally, a certificate of insurance is a summary document usually issued by an agent on behalf of an insurer that says a policy has been issued to an insured for a general type of risk and is usually issued to a third party who wants some evidence or assurance that a policy has been issued.

While certificates are important to collect and review for every third party vendor and subcontractor that your organization engages with, it doesn’t guarantee coverage and cannot act as a contract or a legally binding document.

In fact, ACORD provides this advice on its Certificate Frequently Asked Questions (FAQs):

A Certificate of Insurance is NOT an insurance policy, and does not serve to provide, endorse, amend, extend or alter in any way the terms of an insurance policy. Only an endorsement, rider or amendment to the policy can effect changes in coverage. Reference to a contract between the client and a third party on a certificate does not provide coverage.

While certificates of insurance should accurately depict the coverages and policies in place at the time of purchase, each policy may be tens of pages in length. Because certificates pare down massive files down into a single checklist-style page, oftentimes important details are left off altogether.

Why Reviewing Endorsements, Additional Insured, & Other Info Is Critical

According to IRMI who has done extensive research on the accuracy of certificates, their review of literally hundreds of insurance policies over a number of years revealed a material misrepresentation rate of more than 90% on the vendors certificates of insurance provided to our client. A material misrepresentation for IRMI’s purposes is a deviation between the insurances as specifically referenced in the procurement contract and the insurance as specifically represented on the certificate of insurance.

If your organization doesn’t have a contract on file, then it’s not possible for you to verify that the information represented on the COI reflects the information that is in the contract. It’s also important to review the other factors of coverage such as additional insured, endorsements, and other information that can protect your organization from costly lawsuits or payouts.

Whoever completes your organization’s compliance activities must collect each and every certificate from third party vendors and subcontractors and must double check that the information portrayed in the certificate is accurate and compliant to your organization’s standards.

Rest Assured Each Certificate (And Contract) Is Accurate

Certificate of Insurance Management Solutions exist for one reason: to help you handle the everyday tasks of managing COIs and protecting your company against underinsured claims, costly litigation and failed audits.

Let Lumie handle the paperwork

Keeping every certificate current is a lot to ask of any team. illumend, from myCOI, reads each certificate and endorsement against your requirements, flags what’s missing, and follows up with your third-party partners for you. You’ll see who’s covered, and who isn’t, without chasing a single email.

Want to see it in your workflow? Schedule a demo and we’ll show you how illumend fits.