Clients often demand evidence from design firms that the insurance coverage required by contract is in place. Sometimes, clients also want to know about the carrier and other details of coverage. Certificates of insurance (COI) are merely indications that insurance exists at the time the certificate is issued. By itself, the COI has no legal status and confers no rights upon the certificate holder. A COI cannot amend, extend, or alter the identified coverage.
The COI is a document issued by an insurance company or broker serving as an agent of multiple insurers that provides a summary of the key details of an insurance policy. Its primary purpose is to serve as proof that the firm has insurance coverage in place. The COI typically includes information such as the types of coverage, policy limits, policy effective dates, the insured party’s name, and the insurer's details, and it demonstrates that the insured party carries the necessary insurance to manage risks and liabilities. However, a COI is only documentation of the coverages in place at the time of issuance of the COI. Many clients require submittal of a COI on an annual basis so that they can document that a firm is meeting its contractual obligation to remain covered.
COI is not an extension of coverage to the certificate holder
While a COI provides evidence that insurance coverage exists, it does not create any direct rights or obligations for the recipient beyond that proof. The COI also does not have to list the total amount of coverage carried by the firm if the contractual obligation is for the firm to have a lesser amount in place. The recipient can then verify that the insured has coverage as represented, which can be important for contractual or risk management purposes. However, the COI itself is not an insurance policy and does not confer coverages or benefits to the recipient. It does not make the recipient a third-party beneficiary of the insurance contract nor does it guarantee payment or claim rights. The COI holder’s rights and protections depend on the underlying insurance policy terms and any contractual agreements between the parties.
Because a client might recognize that it is the specifics of the policies referenced in a COI that matter, the client might include a contractual provision that requires the professional service firm to provide, on demand, a redacted copy of a policy so that the client’s risk advisors can analyze the protection provided by such policy. This is often the case with professional liability insurance policies because they vary in their definitions of coverages, exclusions, and deductible obligations.
If a firm fails to provide a certificate or if the certificate is erroneous, the client can bring a breach of contract claim and withhold payment based on non-performance of the contract and institute a charge of fraud or misrepresentation.
Prime and subconsultants should exchange certificates of insurance
Clients are not the only parties requiring certificates of insurance. In a prime consultant and subconsultant relationship, the subconsultant is often required to produce evidence of contractually required professional liability and other insurance coverages. The subconsultant should require the same information from the prime consultant since the actions of the prime, client, or third-party claimant against the prime consultant can harm the subconsultant. If the appropriate insurance is not in place, the subconsultant is likely to be the target of cost recovery efforts. The communication of insurance coverages should be a reciprocal obligation.
Design firms should have a better understanding of the role of a certificate of insurance and not simply view a client’s request as an administerial act of the firm’s insurance brokers.