Top Mistakes in Certificate of Insurance
Top Mistakes in Certificate of Insurance and How to Avoid Them
Mistakes in Certificate of Insurance (COI) can jeopardize your business by exposing it to significant financial and legal risks. Even a tiny error or oversight can result in inadequate coverage when you need it most.
To safeguard your interests, it's crucial to understand these common pitfalls. In this guide, we’ll highlight the most frequent mistakes made with COIs, illustrate their consequences with real-world examples, and outline actionable steps to ensure you maintain accurate and adequate insurance protection.
Top 5 mistakes in a Certificate of Insurance
1. Accepting an Outdated COI
- Mistake: Many must check if the COI is current and valid, often accepting expired or outdated certificates.
- Why It’s a Problem: An expired COI means the insurance coverage may no longer be in effect, exposing you to potential liability. You could face substantial financial and legal consequences if an incident occurs and the policy has lapsed.
- Example: A property manager receives a COI from a landscaping company dated a year ago. If the insurance policy has since expired and the landscapers cause damage, the property manager may have to bear the costs.
- How to Avoid This Mistake: Always verify the coverage dates on a COI and request an updated document if it’s expired or about to expire. Setting reminders for long-term projects can help ensure you have current coverage throughout.
2. Ignoring Coverage Limits
- Mistake: Overlooking whether the insurance coverage limits meet your contract’s requirements or adequately cover the project's potential risks.
- Why It’s a Problem: Your business could be financially responsible for the excess if a claim exceeds the policy’s coverage limit. This can be devastating, especially in cases involving severe injuries or property damage.
- Example: A venue owner requires vendors to carry $1 million in liability coverage. If a COI lists only $500,000, any incident exceeding that amount would leave the venue owner liable for the shortfall.
- How to Avoid This Mistake: Always double-check the coverage limits on the COI. Compare them with the minimum requirements outlined in your contract or assess whether they align with the project's potential risk exposure.
Discover more about evaluating policy limits in our article on How Certificates Differentiate Between Liability Policies.
3. Failing to Verify Additional Insured Status
- Mistake: Assuming you are covered under someone else’s policy without confirming that you are explicitly listed as an “additional insured.”
- Why It’s a Problem: If you are not named as an additional insured, you may have no coverage if a claim is filed. This could leave your business responsible for costly legal defenses and settlements.
- Example: A construction company hires a subcontractor for electrical work. Suppose the subcontractor’s COI doesn’t list the construction company as an additional insured. In that case, the construction company might not be protected if an incident leads to a lawsuit related to the electrical work.
- How to Avoid This Mistake: See documentation that names your business as an additional insured. Ensure this status is explicitly listed on the COI and understand any limitations that may come with it.
Read more about additional insured protections in Additional Insured Explained.
4. Not Reviewing Exclusions and Limitations
- Mistake: Failing to review or understand the exclusions and limitations of the COI or the insurance policy.
- Why It’s a Problem: Certain claims might be excluded, exposing you to liabilities you assumed were covered. Not knowing these exclusions can be a costly oversight in the event of a claim.
- Example: A security company’s COI covers general liability but explicitly excludes “assault and battery.” If a fight on the premises leads to a lawsuit, the security company’s insurance won’t cover the claim.
- How to Avoid This Mistake: Review the COI’s Description of Operations section and ask for a copy of the insurance policy if you notice any concerning exclusions. Understanding what’s not covered is as important as knowing what is.
Find more about insurance exclusions in What To Include In A Certificate Of Insurance.
5. Assuming a COI Is a Binding Contract
- Mistake: Believing that a COI is a binding insurance contract that guarantees coverage.
- Why It’s a Problem: A COI is only a summary of the insurance policy and doesn’t provide any guarantees. The COI won't protect you if there are discrepancies or exclusions in the underlying policy.
- Example: A client thinks having a COI means full protection, even if the insurance carrier has added exclusions or the policy has lapsed. This misconception can lead to uncovered claims and legal headaches.
- How to Avoid This Mistake: Treat the COI as a summary, not the final word on coverage. If you have doubts or need more assurance, review the complete insurance policy or consult a legal or insurance professional.
Learn more about understanding COIs in the Top 7 Reasons to Request a Current Certificate of Insurance
Essential Checklist to Avoid COI Mistakes
- Verify Named Insured: Ensure it matches the legal name on your contract.
- Check Coverage Dates: Confirm that the policy is active and will remain valid throughout your project.
- Review Coverage Limits: Ensure they meet or exceed your contractual or risk requirements.
- Confirm Additional Insured Status: Ensure your business is named and there are no limitations to reduce your protection.
- Read Exclusions and Limitations: Understand any gaps in coverage and request additional coverage if necessary.
- Understand the Nature of a COI: Remember, a COI is not a contract; review the entire policy if needed.
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FAQs on Mistakes in Certificate of Insurance
How can I ensure a COI is current?
- Always check the coverage dates and request an updated COI if the current one is about to expire.
What should I do if coverage limits are too low?
- Ask the insured party to increase their coverage to meet your contract requirements before proceeding.
Can a COI list multiple exclusions?
- Yes, it’s crucial to review all exclusions and discuss any concerns with the policyholder or their insurer.
Why is additional insured status crucial?
- It provides direct coverage for your business, reducing risk in case of a claim related to the insured party’s work.
What should I do if I’m unsure about the COI’s details?
- Consult with your legal or insurance advisor to review the COI and ensure your interests are protected.
Related Blogs for Further Reading
- Cyber Insurance: Protect your business from cyber threats.
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- CPA US Course: Enhance your understanding of financial risk management.
- AICPA IFRS: Advance your knowledge in financial reporting and risk assessment.
Avoiding these common COI mistakes can save your business from significant financial and legal consequences. Use this guide to stay proactive, ensure thorough insurance coverage, and minimize risks.
Homeowner right to repair for insurance. Questions? Answers.
The homeowner's right to repair refers to the policyholder's option to choose their own contractors to perform repair work on their property following an insurance claim, rather than using contractors selected by the insurance company.
Exercising your right to repair allows you to have more control over the quality of materials and workmanship, ensures that trusted and reputable contractors handle the repairs, and can often lead to a faster resolution as you are directly involved in managing the project.
The request letter should include:
- Your personal and contact information.
- Details of the incident (e.g., date of the fire or flood).
- Your policy number.
- A formal request to exercise your right to repair.
- Information about the chosen contractors, including their credentials and estimates.
- An invitation for the claims adjuster to inspect the property.
When selecting contractors, consider their experience with the specific type of damage (e.g., fire or flood), their reputation, licensing and insurance status, references from previous clients, and their ability to provide a detailed estimate and scope of work.
If the insurance company denies your request, you should ask for a detailed explanation. It may be helpful to review your policy to understand your rights and, if necessary, seek assistance from a public adjuster or legal counsel to advocate on your behalf.
Yes, the insurance company may impose conditions such as requiring detailed estimates, using licensed and insured contractors, and ensuring that the repairs meet certain standards. It’s important to comply with these conditions to ensure your claim is processed smoothly.
Inform your insurance company as soon as you become aware of additional costs. Provide them with updated estimates and an explanation of why the additional expenses are necessary. Most policies will have a procedure for handling cost overruns, but it’s important to get prior approval from the insurer.
Yes, if your home is uninhabitable due to the damage, your policy may include additional living expenses (ALE) coverage, which can reimburse you for temporary housing, food, and other necessary expenses while your home is being repaired. Check your policy details and discuss this with your insurance adjuster.
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