Certificates of insurance: Overview, definition, and example
What are certificates of insurance?
A certificate of insurance (COI) is a document provided by an insurance company or broker that verifies the existence and details of an insurance policy. The certificate serves as proof that the policyholder has valid insurance coverage, typically indicating the type of coverage, policy limits, policyholder information, and the insurer's contact details. It is commonly used in business transactions, particularly when a company or individual is required to show proof of insurance to a third party.
Certificates of insurance are often used in various industries, such as construction, leasing, and event management, where it is essential for one party to confirm that the other party is properly insured before entering into a contractual relationship.
Why are certificates of insurance important?
Certificates of insurance are important because they provide a quick and easy way for businesses and individuals to demonstrate that they have the required insurance coverage. They are often requested as part of the due diligence process in contracts, leasing agreements, or business partnerships. By reviewing a certificate of insurance, a party can ensure that the other party is adequately insured against specific risks, such as property damage, liability, or workers’ compensation.
For businesses, COIs help mitigate risks by ensuring that their contractors, tenants, or partners maintain the appropriate levels of insurance coverage. For individuals, COIs provide confidence that their partners or service providers are adequately covered in case of accidents or damages.
Understanding certificates of insurance through an example
Imagine Company A is entering into a contract with a contractor, Contractor B, to perform work on a new office building. As part of the contract, Company A requires that Contractor B provide a certificate of insurance to confirm that they carry general liability and workers’ compensation insurance. Contractor B obtains the COI from their insurer, which lists the coverage details, including the policy limits and the effective dates of the insurance.
In another example, a landlord, Landlord C, requires a tenant, Tenant D, to show proof of insurance before signing a lease agreement for office space. Tenant D provides a certificate of insurance showing they have the required liability coverage, ensuring that the landlord is protected in the event of damage or injury on the property.
An example of certificate of insurance clause
Here’s how a certificate of insurance clause might appear in a contract:
“The Contractor shall provide the Company with a certificate of insurance prior to the commencement of work. The certificate must demonstrate that the Contractor has general liability insurance with a minimum coverage of $1,000,000 and workers' compensation insurance as required by law. The certificate must name the Company as an additional insured on the general liability policy and must be submitted for approval at least 10 days before the work begins.”
Conclusion
A certificate of insurance is a crucial document in many business transactions, offering proof that the required insurance coverage is in place. It helps businesses verify that their contractors, tenants, or partners are adequately covered for potential risks, ensuring that both parties are protected. By understanding the requirements and using certificates of insurance appropriately, businesses can reduce their exposure to risks and ensure compliance with contractual obligations.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.