An important part of any corporate risk management strategy is working with safe, reliable vendors and contractors. One critical step towards this goal is ensuring that those vendors carry and maintain the required insurance coverage. Merely collecting insurance certificates from vendors, however, is only a partial solution.
Unless each certificate is carefully reviewed and scrutinized, the company hiring the vendor may not in fact be covered by that vendor’s insurance policy.
“ This certificate is issued as a matter of information only and confers no rights upon the certificate holder”
It goes on further to state:
“ If the certificate holder Is an ADDITIONAL INSURED, the policy(ies) must be endorsed… A statement on this certificate does not confer rights to the certificate holder In lieu of such endorsement(s).”
The language is simple. Simply collecting a certificate of insurance from a vendor does not mean that the vendor is in compliance with the hiring organization’s insurance requirements unless the next, and most important, step is taken. This step is manually reviewing and scrutinizing every policy endorsement, especially the additional insured endorsement, to guarantee that coverage is afforded the additional insured entity in case of a vendor accident. Even though a vendor’s contract or purchase order with a client may require that vendor to carry liability insurance and name the client as an additional insured, there is no guarantee the vendor’s insurance policy actually confers that coverage. There are so many endorsements in use today, and so many differences between those endorsements; careful review and scrutiny must be given every single certificate and endorsement. Otherwise, there is only the illusion of coverage.
Once organizations have identified this potential loophole in their vendor compliance program, the next step is finding a cost-efficient and reliable method to carefully review every certificate. Insurance industry knowledge and experience are required to understand the language in these key endorsements to determine if they not only meet an organization’s requirements, but also protect the organization in the event the vendor is involved in an accident leading to loss.
Hold harmless language (a/k/a indemnity language) is found in most contracts and agreements, with the purpose of transferring the obligations of one party to another to defend and make whole the other party for legal liability, typically related to the services, work or nature of the contract.