The Dangers of Certificates of Insurance

A standard practice is to request Certificates of Insurance from contractors. While this is a good practice, did you know that the Certificate is only valid for the day it was issued?

When someone says 'contractor', most people think of construction. However, contractors come in many different forms, and they can fix your drain, fix your computer, build or demolish a structure, pick up your groceries, and just about anything else! Anyone that is contracted to do something for you is technically a contractor, and to check if the contractor has insurance, the common practice is to ask for a Certificate of Insurance. A Certificate of Insurance will show the policy period, named insured, and what coverages they have. Most people ask for a Certificate from the contractor before they allow the contractor to begin working. The perception is that if they can provide a Certificate of insurance, they must be insured, and if they’re insured, any damages they cause will be paid by their insurer.

While this perception is technically true, the problem is that a Certificate is only valid for the day it was issued.  This means that the contractor could cancel the policy the following day and you won’t know. When a policy is canceled, the policyholder is the only one who gets a notice of cancellation, unless the policy has been endorsed or if there are Additional Insureds on the policy. Again, Certificate Holders will not be notified unless the policy has been endorsed.

While there are bound to be some devious contractors that would do this, another frequent scenario is when a contractor is late on his/her payments, which initiates a cancellation for non-payment. If the contractor doesn't pay their bill in time, there might be a lapse in coverage. Another situation could be if the contractor lets the policy expire or if they forget to renew the policy while they're working for you.  Furthermore, unscrupulous contractors have been known to forge coverages on the Certificate, or to counterfeit a Certificate altogether!

So simply producing a Certificate of Insurance doesn't mean that the contractor is insured. To properly protect yourself when you're working with a contractor, follow these safeguards:

  • Have the Certificate sent directly from the agent, and confirm the Certificate by calling the agency.
  • Review the Certificate. Be very suspicious if there are misspellings or if the Certificate isn't issued on an ACORD form.
  • Request for Additional Insured status on the contractor’s policy, and confirm it with the contractor’s agent. Also confirm that you will be notified if the policy is cancelled.
  • Take a look at the effective and expiration dates on the Certificate. If the policy will expire during the time they are working for you, remind yourself to ask for a new Certificate after the expiration. Additionally, be suspicious of any policy that isn't written for a full year.

Certificates of Insurance are a handy spot-check, but to ensure your safety, you’ll need to take extra precautions!

Here’s a link to a sample ACORD Certificate of Insurance: http://www.insureon.com/vlp/certificate-of-liability-insurance.pdf

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Colten Zamrzla, CPCU

Colten first started in the insurance industry in 2010. He then pursued a Bachelor's degree in Finance & Insurance from the University of Nebraska at Lincoln. Once graduated, he immediately started studying for the CPCU and achieved it in just shy of a year. He is solely focused on commercial insurance, able to assist all types of businesses and nonprofits in risk management.

Colten has dedication and passion for his clients and the insurance industry as a whole. He dedicates time to furthering his knowledge on all things business and insurance, and he volunteers for the Independent Insurance Agents of Nebraska, a state-based trade association.