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ARI Blog: Article

Do I Need a Certificate of Insurance?

When a restoration contractor works on another person’s property, there are risks involved. Restoration contractors can sometimes damage personal property or may even be injured while performing the work. Companies and individuals that hire contractors want to be certain that they will not be held liable for injuries, damages, or substandard work. For this reason, they will frequently request to see a certificate of insurance.

According to Trusted Choice:

Certificates of Insurance in Liability Lawsuits

  • Approximately 1 in 25 errors and omissions (E&O) claims a certificate of insurance.

  • Of these, 36% represent cases in which contractors have failed to add, or improperly identified, additional parties to be insured.

  • 21% of these cases involve instances where the certificate holder has misrepresented coverage or claimed to have coverage that does not exist.

What Is a Certificate of Insurance?

A certificate of insurance form is a standardized document that provides evidence of insurance coverage. It will include the contractor’s coverage types and liability limits. This certificate also lists the effective date of the policy.

Why Is a Certificate of Insurance Important?

If you hire a subcontractor who causes a large amount of property damage, your company can be held liable for these damages. Even if your contract terms with the subcontractor clearly state that insurance coverage is mandatory, you could be sued if the coverage isn’t there. This is why you must ask for proof of insurance coverage.

Who Should Request a Certificate of Insurance?

If your company hires subcontractors, you must get a certificate of insurance from each one you work with. Even if you trust your subcontractors – for example, if you have worked with these contractors in the past and knew them to have insurance at the time – you should submit a certificate of insurance request each time you hire them onto a new job. Doing so can prevent a scenario where you inadvertently take on the risks associated with the work your subcontractors perform.

Be sure to ask for a certificate of insurance before allowing contractors to work on your property if you have work done on your home, condo, or landscaping. Taking this important measure can cover your risks in several ways:

  • It can prevent you from taking on risk if an improperly insured company is responsible for property damage. For example, if a contractor is working on your property and inadvertently damages your neighbor’s trees, shrubs, lawn, landscaping, or home, you will not be held responsible.

  • It will ensure that you are not held responsible for a contractor’s medical bills if that contractor is injured while performing work on your property.

  • It will also ensure that you can receive compensation if the work is poorly done or not completed. In this case, you would be able to go to the contractor’s insurance company to file a claim.

What Should I Look for on a Certificate of Insurance Form?

Not all certificates are valid. Contractors may present false or forged information or may allow insurance to lapse after attaining the certificate of insurance form. You can eliminate many instances of fraud by requesting the business insurance certificate directly from the insurance company instead of getting it through the contractor.

The following are some things to pay close attention to when you receive a certificate of insurance:

  • Confirm that the name of the insured on the form is an exact match for the name of the person or company you are hiring.

  • Check the policy coverage dates to ensure that they are valid. If the policy is due to expire before the job is completed, you will need to be sure to get another certificate of insurance at that time.

  • Ensure that the certificate holder has, at a minimum, both general liability insurance to protect against damages, and workers compensation insurance, to protect you if the worker is badly injured on the job.

  • Make sure that the liability limits held by the contractor meet the liability limits you require of your workers. If they are not high enough, you can request that the contractor purchase additional coverage and present you with a new certificate.

  • Ask to be named an additional insured party for the duration of the project or contract for hiring the worker.

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