ANOTHER EXAMPLE OF WHY CERTIFICATES OF INSURANCE ARE BASICALLY WORTHLESS

July 6, 2015


By: Alan M. Mullins


         Previously we told you that your District named as an additional insured on a certificate of insurance can be a legal illusion if the underlying policy provides that coverage is secondary to other applicable policies. A recent Court Decision reminds us why being named as an additional insured on a certificate of insurance may not seem what it implies.


         In this contract dispute, a construction contractor held a contract to renovating a condo and entered into a subcontract for plumbing work. The plumber caused damage to other condos. The contractor was sued and its insurance company defended it. The contractor’s insurance company then sought reimbursement from the plumber’s insurance company, since it was subrogated to the contractor’s rights.


         The plumber’s certificate of insurance named the contractor as an additional insured and said the plumber’s policy was the primary policy. However, the certificate also stated that the contractor was an additional insured “as required by written contract.” Therefore, the contractor only had to show that the subcontract required the plumber to name the contractor as an additional insured on its Commercial General Liability ("CGL") policy.


         The contractor did not meet this requirement, however, because it was sloppy with the subcontract. The subcontract required the plumber to name the contractor as an additional insured only on the certificate of insurance, not the insurance policy itself. Beyond the fact that certificates of insurance are generally not legally enforceable, the certificate actually provided that it was issued for information purposes only, did not confer any rights upon the certificate holder and did not amend or alter the policy.


         We remind you to be wary of certificates of insurance. If you want your District to be fully protected, your contracts must insist that contractors provide proof of a policy amendment, endorsement, rider, etc. that names the District as a primary additional insured. Do not hesitate to contact us to help you navigate this tricky contractual maze.