As business owners, we all understand the importance of carrying insurance. Every year, we invest thousands—sometimes even millions—of dollars to meet insurance requirements. It's a non-negotiable part of doing business, ensuring compliance, and protecting ourselves from risk.

Insurance is essential, whether mandated by state regulations or required for specific projects. Before any job can begin, we must provide one critical document: the Certificate of Insurance (COI).

The COI is a standard proof of insurance that is recognized across industries and states. Whether you're working on commercial or residential projects, this document is your ticket to starting the job. It's a small but crucial piece of the puzzle that keeps businesses moving. Think of it as a safety net. If a contractor or business shows their COI, it's their way of saying, "I'm responsible, and if something bad happens, my insurance will take care of it." It helps everyone feel confident that things are protected.

This column will explain what contractors need to know about COIs, when they are required, what's in them, and why they are important.

Why COIs matter?

Certificates of Insurance (COIs) are essential because they prove you have the right insurance coverage. If you're bidding on a job, especially for federal or state contracts, you'll likely need to provide a COI. In some cases, you'll even need to submit it before placing a bid.

Each project has different insurance requirements, and a COI is your way of showing you meet them. It assures others that if something goes wrong—like an accident—you're covered.

For example, as a subcontractor, the general contractor may require you to list them as an additional insured on your policy. This means your insurance will cover any claims first if there's an issue. Beyond winning the contract, your insurance will also be checked before you're paid to ensure it's still valid.

It's crucial not to lower your coverage limits after completing a project. The COI outlines these details, and staying compliant ensures smooth operations and payments.

What information is included in a COI?

While a COI shows evidence of insurance, it may be used to include language that reflects an additional insured (AI) endorsement or the addition of another party (owner, investor, GC).

An Additional Insured (AI) endorsement is a special provision in an insurance policy that extends coverage to another person or organization beyond the original policyholder for specific situations or projects. It adds another party (the additional insured) to the policy, giving them protection under the policyholder's insurance for certain claims or liabilities that arise out of the policyholder's actions, work, or operations.

For example, suppose a subcontractor works on a construction site and causes damage or an injury. In that case, the general contractor (named as an additional insured) may also be protected under the subcontractor's insurance.

Another common requirement of a COI is a waiver of subrogation. You will often see this waiver under the worker's compensation requirement. A Waiver of Subrogation is a provision in an insurance policy or contract where one party agrees to give up their insurer's right to "subrogate" against another party after a claim is paid. In simpler terms, it prevents the insurance company from seeking reimbursement from the party that may have been responsible for the loss or damage. Below is an outline of what will be in a COI.

Basic Policy Information

• Policyholder's Name: The insured business or individual.
• Insurer's Information: The name and contact details of the insurance company providing coverage.
• Policy Number: A unique identifier for the insurance policy.
• Policy Period: Start and end dates of the insurance coverage.

Coverage Details

• Types of Coverage:
  • General Liability
  • Commercial Auto
  • Workers' Compensation
  • Professional Liability (E&O)
  • Umbrella or Excess Liability
• Coverage Limits: The maximum amount the insurance will pay for a claim. Limits might include:
  • Per Occurrence Limit: The maximum for any single claim.
  • Aggregate Limit: The maximum the policy will pay for all claims during the policy period.
  • Sub-limits for specific situations (e.g., fire damage, medical expenses)

Additional Information

• Description of Operations: This may describe the specific project, location, or operations the coverage applies to.
• Endorsements: Notes if there are special endorsements, such as specific exclusions or additional coverage terms.

Certificate Holder

• The name and contact information of the person or entity that requested the COI.
• This party may be a landlord, client, general contractor, or other stakeholder who wants assurance of insurance coverage.

When and Why You Need a Certificate of Insurance (COI)

A Certificate of Insurance (COI) is required whenever you need to prove you have insurance coverage. For example:

• Leasing property or equipment: If you rent office or storage space, the building owner will often ask for a COI before signing a lease. Your lease will specify the type of property insurance you need. The same applies when leasing equipment or vehicles.
• Financing equipment: If you're financing equipment, the bank will request a COI to ensure you have the necessary property insurance to protect their investment.

In all these situations, the COI shows that you're covered if someone else's property is damaged, and it assures others that you can cover any repair or replacement costs.

A COI isn't just a formality—it's a way to build trust and fulfill your responsibilities.

Why Contractors Should Keep Records of Certificates of Insurance (COIs)

Keeping a record of all Certificates of Insurance (COIs) is essential for contractors. Here's why:

1. Proof of Coverage for Claims: If a claim or lawsuit arises—sometimes years after an incident—COIs serve as evidence that all parties had the required insurance at the time. This can help defend against accusations of negligence or non-compliance with contracts.
2. Insurance Audits: During an insurance audit, you may be required to show COIs for subcontractors you hired. These documents prove they were insured and help distinguish subcontractors from employees, which can impact your insurance classification and costs.

Maintaining an organized record of COIs isn't just good practice—it's a safeguard for your business against future risks and liabilities.

How long should I keep my COI?

If you are a general contractor or use subcontractors, it is recommended that you keep COIs and records for a minimum of five years.  

When Should You Ask for a Certificate of Insurance (COI)?

If you're a general contractor (GC) hiring specialty subcontractors, always request a Certificate of Insurance (COI). Here's why:

• Proof of Insurance Compliance: Contracts often require subcontractors to carry specific types and limits of insurance and name the GC as an Additional Insured. A COI confirms these requirements are met.
• Protecting Against Liability: Without a COI, the GC could be held liable for accidents or claims resulting from the subcontractor's work.

Collecting COIs isn't just a formality—it's a critical step to protect your business and ensure compliance with legal and contractual obligations.

• Verify Insurance Coverage
• Protect Against Liability
• Ensure Contractual Compliance
• Avoid Legal and Financial Risks
• Track Policy Validity 
• Compliance with Project Owners
• Safeguard the Project Timeline

In Conclusion: The Importance of COIs for General Contractors

Requesting and reviewing a subcontractor's Certificate of Insurance (COI) is a vital risk management step for general contractors (GCs). It ensures subcontractors have the proper coverage, protects the GC from liability, and keeps projects running smoothly.

Without a COI:

• You can't work on a job site.
• You won't get paid.

We've all experienced delays caused by waiting for a COI or making adjustments to meet project requirements. That's why knowing what coverages are needed before signing a contract is critical.

If you're unsure whether you have the correct insurance to bid on a project, don't hesitate to reach out to Rocio Luna at rocio@riskmanagementrls.com for guidance.