Tracking Certificates of Insurance
The following material is provided for informational purposes only. Before taking any action that could have legal or other important consequences, speak with a qualified professional who can provide guidance that considers your own unique circumstances.
Chances are, you are familiar with client requests for “certificates of insurance,” or COIs, to confirm that you have adequate professional liability insurance for their project. This document (commonly known in the insurance world as an ACORD 25 form) is a fairly basic proof-of-insurance form issued by an insurance company verifying important details of an insurance policy. Having to wade through an entire insurance policy to ascertain these details would require a considerable amount of time. The certificate of insurance presents the needed information in a standardized, easy-to-read format.
A typical certificate of insurance includes the following:
- The policyholder’s name
- Any additional insureds covered by the policy
- The insurance company issuing the policy
- The effective and expiration dates of the policy
- The type of insurance coverage (general liability, professional liability, etc.)
- The coverage limits of the policy.
Clients typically request COI’s from all of the major players of a design and construction project with which they have a contractual relationship. They are seeking proof that all parties to a project are meeting the stated insurance requirements for the project. The types of insurance for which a client may request a COI include general liability, professional liability, auto liability, employer’s liability, pollution liability, workers compensation and excess/umbrella coverage. For purposes of this article, we will focus on COIs for professional liability (PL) insurance.
A request for a COI for PL insurance can come from a client at any time during the project. Typically, though, the COI request comes during final negotiations of the client contract, when the client specifies the required insurance coverages, and before design work actually begins.
When receiving a COI request, most design firms contact their insurance agent or broker and forward the request. The agent/broker then works with the insurance company to fulfill the request and deliver the COI to the client.
Note that nothing on the COI can modify or alter the underlying insurance policy. The policy is always primary in the event there are discrepancies between the two documents.
What About Your COI Tracking Procedures?
Just like clients have a legitimate need to know your PL insurance coverages, you need to know the types and levels of professional liability insurance your subconsultants have secured. You, after all, have vicarious liability for any losses caused by a subconsultant that you bring to a project. Collecting PL COIs is basic due diligence to help minimize your liabilities.
Suppose, for example, as the prime architect on a project, you hire a structural engineer to design the foundation of an office complex. If that foundation later proves to be inadequate or faulty and results in added expenses, delays and losses for the project owner, the structural engineer is the likely target of any claim. But if that engineer has inadequate insurance to fully cover the losses, you can bet that you, the prime architect, becomes the prime target of the claim.
Maybe you are already experienced in requesting COIs from all of your subconsultants and perhaps some key vendors. But do you have protocols in place to make sure your efforts are indeed looking out for your best interests? After all, COI tracking procedures don’t stop when you receive and file away your certificates. You need a systematic tracking program to request, review, file, monitor and store your COIs to make sure insurance requirements are met and your records are complete, accurate and up to date. Here is a basic five-step COI tracking process for professional liability insurance:
- Requesting certificates. Ask all subconsultants that you bring to a project to provide you with COIs for professional liability insurance. There may also be reason to request COIs for other types of coverage, such as auto or workers compensation, depending upon the subconsultants roles and responsibilities on the project.
Generally, the project manager makes this request for COIs. This is a good time to remind the subconsultant of the insurance requirements that were agreed to in your contract. It’s also a good time to remind them of their responsibility to alert you to any changes in their insurance coverages that may occur before the expiration date.
- Reviewing certificates. Upon receipt, the COI should be reviewed by the project manager, your risk manager, or, if you don’t have a dedicated risk manager, the top executive that handles finances and insurance. Compare the COI to the insurance requirements stated in your contract. If there are any discrepancies between the two documents, contact the subconsultant immediately and rectify the situation. If the COI shows that the sub does not meet your insurance requirements, have them stop all design work until this issue is addressed and resolved.
- Filing certificates. Once reviewed and, if necessary, corrected, the COI should be filed in the project folder with an additional copy kept in a separate COI file. This COI file should contain a copy of all of your subconsultants’ COIs for all active projects. We suggest you arrange the COIs by their expiration dates, with the earliest date on the top.
- Monitoring certificates. As the expiration date approaches (e.g., within 30 days), pull the COI from the file and have your project or risk manager contact the subconsultant to verify their PL policy expiration date and ascertaining whether any changes in coverage limits have occurred or are anticipated. Remind the sub that you will need an updated COI when the new or renewed policy takes effect. Continue to follow-up until you receive an updated COI that meets your insurance requirements.
- Storing certificates. Upon project completion, store your COI copy in the project file for at least five years, or the length of your state’s or province’s statutes of repose and limitation. If your contract requires the subconsultant to maintain insurance for a period of time after project completion, then keep that COI file live until that post-project-completion date has passed.
More COI Tips
The above five-step process provides a basic framework for handling your professional liability insurance COI tracking. Here are a few additional tips you can use to keep on top of the COI tracking process and increase the chances of compliance with your insurance requirements:
- Be reasonable with your insurance requirements for subconsultants. As a general rule, it’s preferable that you require the same limits of professional liability coverage that the client requires of your firm for the duration of the project. That eliminates any coverage gap that makes you a prime target for a claim if an underinsured subconsultant causes losses to the client or other parties. However, depending on the scope of services of the subconsultant, demanding such limits may be unreasonable. For instance, suppose your client demands that you carry $5 million in PL insurance. There would be little sense in demanding $5 million in professional liability limits from a landscape architect with a modest role on the project. Conversely, $5 million limits may barely be adequate for a structural engineer on a large, complex project, especially if they have a long history of claims. Use reason and be aware of potential coverage gaps that could make you more liable for your subconsultant’s errors or omissions. But be willing to negotiate your requirements with each subconsultant. And understand that no one can guarantee that they will have available policy limits any time in the future.
- Your subconsultants will already have a practice PL policy in place, and may balk at the cost of increasing their overall limit to meet your insurance requirements. In such cases, a specific job excess or specific client excess policy (where a higher limit is purchased only for one project or one client) might be an affordable option for a subconsultant to meet your insurance requirements.
- Offer to provide COIs to your subconsultants so they can be assured that your firm carries adequate limits and doesn’t present a major uninsured liability to them. What’s good for the goose is good for the gander.
- Tie your request for COIs to your accounts payable system and the subconsultant’s ability to get paid. Subconsultants are much more likely to meet your request for compliant and up-to-date COIs when they know they won’t be paid until the COI is delivered to and approved by your firm. Never make full payment to a subconsultant who has not delivered an acceptable COI.
- Develop a simple COI spreadsheet that becomes part of your COI file. Include columns for listing each subconsultant’s name, contact information, PL policy limits and PL policy effective and expiration dates. List the consultants in order by earliest to latest expiration dates. This gives you a handy calendar for your COI tracking.
- Investigate available COI tracking software. Products are available that can help you implement a formal, highly automated tracking process. Third-party vendors are also available to handle the entire COI tracking process, though this option is likely cost effective only for large A/E firms that regularly handle many certificate requests.
- Beware of fraud. While instances of counterfeit COIs are rare, they do happen. Never accept a certificate directly from the subconsultant or anyone other than the issuing insurance company. If the certificate appears to have been altered, or if you cannot verify the identity of the insurer, investigate the authenticity of the COI further.
- Bring your COI tracking procedures to the attention of your insurance carrier when renewing your own policies. Having an effective tracking system and a high level of compliance by your subconsultants will make you a more attractive client in the eyes of your insurers and could result in lower premiums.
Beyond Professional Liability Insurance
We’ve focused this look at certificates of insurance as they apply to your subconsultants’ professional liability insurance. But you may also want to make sure your subconsultants carry adequate general liability, workers compensation, employer’s liability, automobile liability, umbrella liability, pollution liability, and other coverages that fit their services and client demands for the project. We suggest that you consider the following:
- Ask to be named an “additional insured” on a subconsultant’s general liability and other policies where it makes sense.
- Place a “primary and noncontributory” requirement on general liability and umbrella liability policies, ensuring the sub’s insurer pays out first for any loss.
- Include a “schedule of insurance” in each subconsultant’s contract, specifying the types of insurance you expect the subconsultant to carry as well as the per claim and aggregate limits of each.
- And finally, collect certificates of insurance for all important coverages as evidence that the policies are in place throughout the life of the project.
Can We Be of Assistance?
We may be able to help you by providing referrals to consultants, and by providing guidance relative to insurance issues, and even to certain preventives, from construction observation through the development and application of sound human resources management policies and procedures. Please call on us for assistance. We’re a member of the Professional Liability Agents Network (PLAN). We’re here to help.