Guide – How to Read a Certificate of Insurance

Certificates of insurance (COI) can be confusing to many clients. Please download this helpful guide on how to read a COI.

Our corporate clients often ask us two questions. The first is: “Are there any legal requirements for tracking vendor certificates of insurance?”

The simple answer to that question is “no.” The real answer, however, is a little more complex than that. Many of these clients work for publicly traded companies and are concerned about reporting requirements under the Generally Accepted Accounting Practices (GAAP) or under the Sarbanes-Oxley Act of 2002 (SOX). Neither GAAP nor SOX specifically require companies to track certificates of insurance. However, SOX does require executives and their auditors to report on the effectiveness of their internal controls. Many companies look at the tracking of COI’s as a way to minimize possible knowledge gaps regarding their financial exposures. There is the equally important additional benefit of reducing financial risk and minimizing litigation costs.

The second question we get asked is: “We’re covered if we made sure to get a certificate of insurance, aren’t we?” Well, the answer to that question is “maybe.”

Many of our clients require their contractors and suppliers to submit proof of insurance. The primary reason for collecting certificates of insurance is to ensure that the other party has sufficient insurance coverage in place. You want to make sure that the other party maintains minimum levels of workers compensation, general liability, and commercial auto coverage. Those levels should at the very least be those determined by your risk management group, but may increase depending on the work or the type and quantity of material being supplied.

Many companies also require that they be listed as an additional insured. An additional insured is the company named on the certificate that is covered under another party’s (the contractor’s) insurance policy. This coverage provides protection from liability or risks that arise from the named insured’s (the contractor’s) work, performance, negligence, or improper conduct.

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