A certificate of insurance provides proof to a third party that a vendor or other business has adequate insurance coverage. Many organizations need to limit their liability when hiring outside vendors or contractors, and a certificate of insurance helps them place liability for injuries or damages back onto the vendor.
Certificates of insurance are designed to prove your insurance status and amount of coverage while limiting the liability of the other company you're working with. These certificates are most common when two businesses or organizations are working together, specifically if one business is using the equipment or space of another. For example, if you want to sell hot dogs from your food cart on a college campus, the college is likely to request a certificate of insurance. This helps place the insurance burden on you if someone becomes sick from your hot dogs or if someone trips over your power cord and gets hurt.
Certificates of insurance don't just prove you have insurance. They also show what types of coverage you have and the coverage limits. If you are the only employee of your company, you may qualify as a vendor for an organization if you don't have workers' compensation coverage. However, if you add employees, you may need to add proof of workers' compensation coverage to continue as a vendor. In addition, your coverage limits on items such as general liability and professional liability must meet the minimums required by the other business. Most certificates include effective dates of coverage, which means you should send new certificates when you renew or change your insurance.
Some companies want to be named as an additional insured on your certificate of insurance. This doesn't give them access to your insurance policy to make changes or discuss past claims, but it reduces their liability even more. Any claims filed against them that arise from your actions or equipment can be sent to your insurance company instead of theirs, reducing their need to pay deductibles and risk higher premiums. Many times, a certificate with an additional insured party is valid for a specific date range or event.
If you require vendors to supply you with certificates of insurance, create some kind of tickler file to remind you when you need to request updated certificates. If you have expired certificates on hand, you could open your company to liability from damages caused by the vendor. For vendors you only use occasionally, call the insurance company listed on the certificate to verify that the insurance is still valid. Even if your certificate has not expired, the vendor may have failed to pay its insurance or changed companies without supplying a new certificate of insurance for your files.
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