Common Pitfalls of Certificates of InsuranceReal Estate Influence
March 8, 2013 — 814 views
A certificate of insurance ensures that your business partner has signed an agreement to obtain an insurance coverage. Basic coverage information is included in the agreement like the policy limit, identification of the certificate holder, the expiration and inception dates of the policy, the deductible and the type of insurance that can be applied. These certificates do come with various pitfalls, which are discussed below.
These certificates are summaries of coverage and do not provide terms and conditions of the coverage like restrictions, exclusions and sub-limits. Being unaware of these details about the certificate could propagate a false sense of security.
The certificates also contain a disclaimer that it doesn’t extend, alter or amend the coverage afforded by the contract or policies. In case there is some discrepancy between the policy and the certificate, the holder of the certificate may not be favored.
Agents generally issue a certificate of insurance as opposed by the insurance company. It is common for the insurer to ignore the certificate or he may not even receive it initially sometimes.
The certificate of insurance comes with coverage limits that could put the person, who takes this certificate, at a huge risk. This certificate is just evidence and not a full blown insurance policy. It is for this reason that the person taking the insurance certificate should ensure that they receive a copy of it. They should also carefully examine the copy to ensure that they are fully aware of and satisfied with its terms and limitations.
Many a time, the limitations of such certificates can be counteracted with additional premium endorsements. In case there is litigation between the insurer and the producer of the certificate, the certificate holder will most likely not be involved in such a case and the settlement is negotiable.
In case the premium is not paid or some other breach of contract occurs, the policy could get cancelled or may get terminated before its term completes. In such cases, the insurer may not notify the certificate holder and the holder of the certificate may never know that the policy has been cancelled or expired.
Certificates that are Additionally Issued
In many cases, one of the parties involved in the business transaction will be an additional insured person. The certificate of insurance may not specify which additional insured form is actually being used.
Numerous types of additional insured endorsements are available some of which can be pretty restrictive. Without checking out the additional insured endorsement document that accompanies the policy, you cannot exactly know what the coverage entails. Sometimes the certificate is unreasonable and irrational to begin with. It would be safer for the holder not to fully rely on the certificate but instead review the policy in detail. The endorsements should be reviewed in detail as well.
Also it is important to check and understand what types of damages are covered under the insurance and whether it takes care of exemplary or punitive damages.