Consider the following scenario:

A worker employed by an building services contractor falls from a ladder while performing minor building maintenance and repairs for a retail store owner. The worker's employer does not carry workers' compensation coverage. The worker sues the building owner (or store owner who retained the service contractor). JUDGMENT FOR THE PLAINTIFF.

Unfortunately, this type of scenario is not uncommon and occurs much too frequently often because organizations (and potential defendants) fail to verify insurance coverage from contractors/vendors or implement other risk transfer techniques.

The actions or negligence of a contractor, subcontractor, or vendor can result in property damage, bodily injury, or an increase in your insurance premium. To provide evidence of financial responsibility for the actions of another party, such as a vendor, it is advisable to require all contractors and vendor to provide valid certificates of insurance. Certificates of insurance serve as evidence that vendors can satisfy various financial obligations in the event of damage or injury.

Independent contractors working on or off your premises can create hazards that result in property damage and/or bodily injury to another party. If the contractor is working in your behalf, the financial liability for any loss and claim could be yours without a requirement for Certificates of Insurance and an effective certificate management procedure. In the absence of a valid Certificate of Insurance for Workers' Compensation coverage, injuries to employees of uninsured contractors on your premises or performing work on your behalf could be covered by your Workers' Compensation policy. In both cases, your own loss experience would deteriorate and insurance premiums would increase.

Certificates of Insurance should be required to verify Workers' Compensation, General Liability, Commercial Automobile Liability as well as any other coverages germane to your unique situation. Requirements should be communicated in writing to contractors and vendors. Requirements should specify limits of liability to be carried by the vendor as appropriate. Contractors and vendors, generally, should be required to carry limits of liability equal to or greater than the limits of liability on your policies.

Certificates of Insurance should contain the following information:

• Name and address of named insured
• Name of insurance company writing each policy
• Name and address of authorized agent
• Description of coverage
• Policy number(s)
• Policy period(s)
• Limits of Liability
• Name and address of certificate holder
• Notice of cancellation
• Authorized signature and date (original -- not photocopy)

It should be noted that the insurance certificate is not an insurance policy or contract, only evidence of an insurance policy. Certificates of insurance can be altered to indicate coverage that is not actually in force. Each certificate should be validated through contact with the authorized agent or the insurance carrier upon receipt and re-validated prior to payment to ensure that adequate coverage was in place throughout the duration of the project or job.

Certificate of Insurance Management Procedures

• Certificates of Insurance should be maintained in centralized certificate files (original) and vendor files (photocopy) for easy access and reference by all who need to validate vendor coverage.

• Certificates of Insurance should be requested immediately after a contract is negotiated and executed or a new vendor is added to approved sources for service or supply. A request letter may be used to outline insurance requirements for the contractor or vendor.

• Suspense files should be maintained to monitor receipt of certificates within a specified time period (15 - 30 days). Second request letters or telephone follow-up may be appropriate to expedite receipt of certificate. If certificates are not received within a specified timeframe (30 - 45 days) from the original request, business with the vendor/consultant should be suspended or discontinued and, if appropriate, the request should be escalated to a higher level of management within the contractor or vendor organization.

• Suspense processes should be developed to monitor expiration dates and renewal of vendor coverages. A renewal certificate request letter may be sent to contractors/vendors as a reminder in the month of or prior to expiration. Renewal certificate suspense should be handled like initial requests.

• Periodic contact with the authorized agent or insurance carrier to validate in-force coverage may be advisable. A certificate issued at policy effective date is not a guarantee that the policy is not immune to mid-term cancellation or other change that could render the certificate invalid and ineffective.