Construction Contracts Ultimately Cause Certificate Problems
Agents and insurers who work with a large number of construction clients know that contracts, additional insured requests and Certificates of Insurance are all part of daily life. But often overlooked are the problems created for agents who are requested to use certificates of insurance to meet contractual and additional insured requirements.
Interpreting contractual risk transfer provision, establishing additional insured status by endorsement and issuing Certificates of Insurance each create separate dangers for the agent and the underwriter. Examples of these problems created by these distinct actions include:
Contractual Risk Transfer Interpreting contractual risk transfer provisions in any construction contract requires you to understand: 1) the basics of contractual risk transfer, including the parties involved in the transfer; 2) the responsibilities of each of these parties; and 3) the agent's limited role - letting the insured know whether or not the insurance policy complies with the contract (and how to fix areas where it doesn't, if a fix is available).
Additional Insured Status Contracts often require the lower tier contractor to name the upper tier contractor as an "Additional Insured" on the lower tier contractor's insurance policy. You have to know how this affects the lower tier's insurance coverage, or if it affects it at all. Beyond knowing how giving additional insured status to another party affects coverage, you also must understand how much coverage is actually extended by the policy language (it may not be as broad as what the contract requires).
Certificates of Insurance This is the final pit in this line of traps. Agents are requested to issue Certificates of Insurance on a daily basis. Agents are often asked to prove that a lower tier contractor's insurance policies comply with contractual risk transfer and additional insured status required of them in these Certificates. While some provisions can be attested to in a Certificate, some cannot. And using a Certificate for any purpose other than that intended can lead to a major errors and omissions problem for the agent.
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Barbara Dooley
Online Training Coordinator
Academy of Insurance
www.ijacademy.com
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