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Insurance - Managing Certificates of Insurance

image Jillian Duzan, Certificates Tracking Services Mgr., Catto & Catto LLP, San Antonio, TX

SAN ANTONIO - Understanding risks is a crucial part of operating a successful business. Certificates of Insurance (COIs) from subcontractors, vendors and suppliers help reduce risk by ensuring that insurance coverage is in place and that it meets the requirements outlined in subcontract agreements. Collecting and checking COIs to ensure compliance standards have been met—reviewing for key endorsements and dangerous exclusions—is a tedious but necessary task.

 

    There are four common endorsements that are considered essential: Additional Insured, 30-Day Notice of Cancellation, Waiver of Subrogation, and Primary & Non-Contributory. Additional Insured status provides coverage to other individuals/groups that were not initially named on the policy.  If you are endorsed as an Additional Insured on a vendor’s policy, coverage will be extended to you on their policy so that you will be covered if a claim arises.  A 30-Day notice of cancellation endorsement is crucial, because it’s important that you are notified when a policy lapses.  Even if you have marked a subcontractor compliant, that doesn’t guarantee that coverage will remain in effect until the expiration date.  There are many scenarios in which policies are cancelled midterm.  A Waiver of Subrogation is a provision in which the insured waives the right of their insurance carrier to seek compensation for losses from a negligent third party.  A Primary and Non-Contributory endorsement is used to determine the order in which policies will respond if there are multiple policies involved in the same loss.  If this endorsement is applied, the vendor’s policy must pay before any other applicable policy without seeking contribution from other policies.  The Waiver of Subrogation may sound similar to the Primary & Non-Contributory endorsement, but there is a major difference between the two.  Waiver of Subrogation prevents the insurance company from seeking reimbursement from the Additional Insured’s policy after a claim is handled, while the Primary and Non-Contributory endorsement prevents the Additional Insured’s policy from contributing towards the payout during the claims process.


    In many cases, there can be exclusionary language within policies that can prevent the policy from paying out in the event of a claim.  Policy exclusions are not listed on a Certificate of Insurance, but they can be detrimental to your organization.  A few major examples of exclusions are: Subsidence and Earth Movement Exclusion, Silica or Silica-Related Dust Exclusion, and Residential New Construction Exclusion.  If you subcontract concrete work, the Subsidence and Earth Movement Exclusion can be very harmful. If there is shifting and settling of the foundation after construction is completed, this could wreak havoc on your company’s finances.  A Silica or Silica-Related Dust Exclusion can be harmful anytime you are working with construction materials like sand, stone, concrete, brick, and mortar. If workers cut, grind, drill, or crush materials containing silica, dust particles are created.  It has been proven that respiratory exposure to Silica can lead to lung disease or lung cancer.  If a bodily injury claim is filed against your subcontractor due to silica exposure, a silica or silica-related dust exclusion could be a nightmare.  Residential New Construction Exclusions can vary with regards to what is excluded.  In some cases single family homes are excluded, or perhaps multifamily projects such as apartments or condominiums can be excluded.  If the unfortunate event occurs in which you have a claim for a subcontractor’s work and coverage is excluded by their insurance carrier, the reality is that as the hiring contractor you would ultimately be held liable. 

    The task of monitoring certificates can be overwhelming.  Employees are exhausted by the tedious process of screening COI’s and endorsements for compliance and the time consuming communications needed to resolve compliance issues.  They may not have extensive knowledge of insurance language, and there is little margin for error. Even the simplest oversight can lead to financial repercussions. 

    Catto & Catto’s concierge certificate tracking service is designed to protect clients while simplifying certificate management. Our professionals handle compliance reviews and communicate directly with subcontractors’ insurance agents to address non-compliant certificates. Clients can check compliance statuses and reports online integrate this data into their accounting software.

    Renewals are also important to monitor. In the construction industry, many insurance policies are written through Excess and Surplus lines, in which case policies do not renew automatically.  Once a policy expires, coverage is not bound for renewal unless payment has been made.  Our cloud-based automated communication tool allows us to start requesting renewals through the system 30 days prior to policy expiration, giving the agents plenty of time to submit updated certificates. 

    The system that we use is also helpful to keep track of subcontractor’s insurance information to prevent a failed audit.  If an audit occurs either on your General Liability policy or Workers Compensation policy, you will be asked to provide verification that any subcontractors you used were adequately insured.  If you cannot show proof, the insurance company will have a right to charge additional premium to cover their work under your policy.   Our system allows you to refer back to documents and communications with subcontractors and their agents for up to 10 years. 

    Improper management of certificates could ultimately result in costly litigation, out of pocket expense, and an increase in your own insurance premiums.  Being proactive in the management of certificates of insurance can help prevent these costly situations.  Having your certificates reviewed by licensed and experienced professionals provides an added peace of mind so you can rest assured that compliance reviews are completed accurately and efficiently.

    Jillian specializes in commercial lines and surety, and also has a vast knowledge of personal lines. Jillian is currently pursuing the Commercial Lines Coverage Specialist (CLCS) designation. Her role as part of the Risk Management team is to assist Commercial Lines clients by providing expert management of certificates.


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