We’ve noticed that misconceptions regarding the crucial differences between policyholders, certificate holders and additional insureds on Commercial General Liability (CGL) policies continue to persist, even among those who regularly handle certificates of insurance. (We're looking at you, construction company owners, property managers, purchasing departments, promo event managers, project managers, accountants, etc.) Misunderstandings regarding these terms could lead to costly litigation and failed loss transfer in the event of an insurance claim.
If you are a certificate holder searching 'certificate holder insurance' on the internet to check your status regarding your subcontractors' policies, or someone just generally seeking clarification about the questions posed above, you've come to the right place.
Let’s clear the air. To begin, we’ll briefly review the scope of the all-important certificate of insurance (COI) document.
The Certificate of Insurance
Most often, a standardized Certificate of Insurance (COI) form, called the Acord 25 form, is utilized for Certificate of Liability Insurance. On the Acord 25 form, you can find all of the most pertinent details of an insurance policy, namely: types and limits of coverage, insurance provider, policy number, named insured(s), and the policy's effective periods. It is important to note that this document does not amend the details of the coverage; rather, it simply serves as proof that a policy exists.
(For a more in-depth account of the uses and misuses of certificates of insurance, be sure to read the guide: "Everything You Need to Know About Certificates of Insurance".)
Going forward in this post, we will use the example of a construction project to explain the differences between three entities: policyholders, certificate holders, and additional insureds.
The policyholder is the person or entity who has purchased a policy from an insurance provider. This party is usually one of the named insureds on the policy. Upon request, a subcontractor or vendor will provide their client with a certificate of insurance to prove that they are, indeed, policyholders, and therefore have coverage in the event that bodily injury, property damage, or advertising or personal injury occurs throughout the course of a project. Policy coverage may also extend beyond the completion of a project.
In this scenario, the client then gains the title of certificate holder. In and of itself, by definition, becoming a certificate holder does not incur any policy-given rights to that entity. Again, the certificate is simply a proof of insurance.
There's no shortage of confusion surrounding the addition of contracting parties to another's insurance policy as additional insureds. There is constant tension between insurers, who aim to limit the scope of coverage under their issued policies, and the policyholders, who want to ensure coverage for all potential risk factors threatening their unique business. Policyholders also wish to extend that coverage to all parties working on a project.
An additional insured endorsement is a provision made to a Commercial General Liability (CGL) policy that effectively extends the subcontractor or vendor’s coverage to the client (general contractor, real estate owner, hotel management company, etc.), and other relevant parties (lender, joint-venture partner, etc.).
If a blanket additional insured endorsement referencing “where required by written contract” is being used, careful review of the language should be done to ensure that all parties seeking additional insured status are provided coverage for an appropriate time period.
With blanket additional insured endorsements, the insurance provider does not have a list of named additional insureds. Since the insurer does not have access to these identities, they are unable to provide any notice of cancellation to affected parties, thus making the additional insureds on the policy more susceptible to lapses in coverage, and subsequently, of failed loss transfer.
How BCS Helps
The above outlines some of the most basic details of liability coverage. Added to this are complicated indemnity clauses, insurance requirements, and other sneaky contract provisions which all contribute to the complexity of adequate insurance review. That's why BCS exists: to relieve you of the stressful responsibility of parsing out verbose insurance jargon and of the hours of paperwork needed to review insurance requirements correctly.
Passing the administrative baton to BCS means improving your insurance status, never mishandling a lapse in coverage, mitigating inadequate insurance language, avoiding costly litigation, achieving desirable loss transfer when claims inevitably arise, and maintaining the necessary bandwidth for you to do the job you were hired to do. You've got everything to lose; don't put yourself at risk by ignoring your certificates.
To learn more about certificates of insurance and risk management, answer any other questions you may have about the difference between certificate holders and additional insureds, or to Schedule a Demo of how BCS can help you and your business, Contact Us Today.