For projects big and small, there are liability concerns to be mitigated, lest project owners, managers, and lenders remain vulnerable to inadequate loss transfer, suffering blows to their reputations every time they are found to be liable for an accident or oversight. Projects of substantial size, such as, hotel construction, for example, include countless third parties to keep track of, among these: investors, general contractors, subcontractors, and even passersby.
An insurance policy of some kind should exist for all parties working on a project, but to review every letter of each policy would be a full-time job in itself, and doing so leaves ample opportunity for missing essential details.
Your best chance at achieving risk mitigation and massively reducing liabilities is to carefully document, track, and manage valid certificates of insurance from third parties.
A certificate of insurance (COI) is a document that contains all the essential details of an insurance policy. It encompasses a complete snapshot of the policy on a single form, including the most pertinent aspects, such as:
The COI is a summary of an insurance policy. It effectively serves as proof of insurance, without the bulk of the policy itself.
A COI constitutes an ‘express’ version of an insurance policy; this convenience could save you dozens of hours of work each year.
By carefully documenting certificates of insurance from all third-party vendors, you're setting yourself up nicely for transferring loss to that third party's insurer in the event of something gone wrong.
Contingent work comes with a unique set of insurance hazards. Performing due diligence and checking each vendor's insurance policy against your insurance requirements could save you from multiple scenarios risking costly litigation and affecting the profitability of your ventures.
There are five main types of insurance policies:
This should be reviewed not only to protect the project owner, but to extend Additional Insured status to the project manager, and possibly a lender. Reviewing certificates of liability insurance is a critical component of risk transfer from project owner to a third-party vendor. One way of further ensuring that your third parties' insurance coverage is adequate enough to protect you, is to look for some of the following indications on the COI:
For a more accurate review of these coverage details, you should collect and review the insurance endorsements.
This should be required and written per the applicable state statutes and laws.
Should be monitored for all vendor-owned, leased, non-owned, and hired vehicles.
One of the COI documents that BCS handles most frequently is the ACORD 25 form, a standardized template document often used to represent any of the five main types of insurance policies. It will list the named insured—the person or entity with the most responsibility and who pays the premium—and it will also contain additional insureds on the policy.
Additional insureds are allowed coverage under the policy owner's contract, but they do not hold the responsibility of paying the premium, nor do they have the power to modify terms of the policy.
If we return to our example of hotel construction, additional insured endorsements might cascade like so:
A hotel owner enters into a construction contract with a general contractor. There will be a section in that contract that states that the general contractor must maintain commercial general liability insurance for the duration of the project. The general contractor will list the hotel chain as an additional insured, because, even though the hotel chain is not performing the work, they may still be sued in the event of bodily injury due to third-party negligence.
From there, the general contractor will request an additional insured endorsement for themselves, and for the hotel chain, from each third-party subcontractor performing work. If done correctly, this will effectively ensure that liability is transferred to the subcontractors' insurers.
If one party wishes to confirm evidence that another party's insurance is in place to cover any losses to property or bodily injury, that's one thing. It might ask to see their insurance policy. But another thing is when the one party (e.g. "Real Estate Corp.") hires the other party (e.g. "Paul the Plumber LLC.") for a project and requires Paul the Plumber to issue a COI. As outlined above, the COI is a concise document containing all the pertinent details of an insurance policy in an easily digestible, standardized form.
More specifically however, when Real Estate Corp. is asking for Paul the Plumber to issue a COI, it is asking for their policy to be "endorsed" (aka 'amended') so that the policy can extend Additional Insured status to Real Estate Corp. Typically the resulting COI will then include wording to the effect of "Real Estate Corp. is listed as an additional insured." That way, if Real Estate Corp. gets sued due to an incident related to Paul's work, they should also be covered by their insurance.
Certificates of Insurance cannot:
There are several elusive factors to consider when checking your business for insurance compliance.
It's vital that whoever audits your certificates of insurance for compliance is disciplined, experienced, and qualified, and has a working knowledge of the following:
The inability to "tender" (aka 'push') claims due to COI non-compliance could be devastating, since it's not unusual for verdicts and settlements to reach the seven figure amounts.
Without sophisticated document-tracking procedures in place, much of your due diligence would likely more accurately be reduced to guesswork.
Many businesses' document-collection protocols are shoddy at best, and non-existent, at worst. When we consider that between 36% to 53% of small businesses are involved in at least one litigation in any given year, and 90% of all businesses are engaged in litigation at any given time, it's tough not to shout "WHY!?"
As a business owner, you should have contracts with every employee and third-party vendor involved with your projects. Your business is unique, so you’ll want to tailor your contracts to your business rather than duplicate them from the internet, and you’ll also want a lawyer to oversee the structuring of these contracts.
There should be processes in place to measure and track vendor compliance. With some particularly large projects, like the hotel construction we mentioned earlier, there could be up to several hundred certificates of insurance and other vendor credentials to mind and manage for that project alone. Project managers don't have the bandwidth to handle all of these documents, maintain compliance standards, track document expirations, and still complete their projects on time.
That's where technology comes in.
Among other features, it provides real-time compliance status updates and is easily customized to reflect your business's unique compliance requirements, no matter how complex.
Beyond just tracking certificates, BCS delves into the real details of insurance coverage to unmask exclusions that could otherwise put your organization at risk.
Most solutions will try to put a cap on this, but our compliance analysts handle all the inbound/outbound vendor support necessary to get them compliant.
Our advanced analytics tools provide the insight you need to make the best risk management decisions, in real time.