If you think you are covered by securing coverage on another’s policy of insurance as an additional insured, think again. In Indiana, care must be taken to assure that an endorsement, in addition to a certificate of liability insurance, contains the language needed to assure liability coverage.
Commonly, a property owner will require that a contractor, employed to provide services of varying types, including construction work, add the owner to the contractor’s policy of insurance as an additional insured. Seemingly, just as frequently, a general contractor will require that a subcontractor’s policy extend coverage to the general and/or to the owner for purposes of liability insurance coverage. Unfortunately, in many such instances the commonly followed approach for assuring that the property owner or contractor has been added to a policy as an additional insured is the exchange of a certificate of liability insurance. Such an approach is fraught with peril. While arguments for coverage based just on the certificate of liability insurance may succeed depending on the particular circumstances of a given case, the safer approach to assure coverage is to require an endorsement adding the additional entity as an insured to the policy.
From an insurance coverage perspective, the problem with the certificate of liability arises from the disclaimer language that is so often included on those forms. Most contain language that reads:
This certificate is issued as a matter of information only and confers no rights upon the certificate holder. The certificate does not amend, extend or alter the coverage afforded by the policies below.
If the certificate holder is an additional insured, the policy must be endorsed. A statement on the certificate does not confer rights to the certificate holder in lieu of such endorsement(s).
When issues over coverage arise, the Courts begin with the premise that “the presentation of a certificate alone does not create coverage or legal duties.” American Family Ins. Co., 774 N.E.2d 932, 939 (Ind. Ct. App. 2002), quoting G.E. Tignall & Co., Inc. v. Reliance Nat’l . Ins. Co., 102 F.Supp.2d 300, 304 (D. Md. 2000). The purpose of a certificate of insurance is to inform the recipient that insurance has been obtained. It does not, however, clarify the terms or extent of that coverage. It is expressly not intended to serve as the equivalent of an insurance policy. Id.
A Seventh Circuit Court of Appeals case explains how the courts generally analyze an additional insured provision on a certificate of insurance. See T.H.E. Ins. Co. v. City of Alton, 227 F.3d 802 (7th Cir. 2000). In Alton, the insurer (“T.H.E.”) provided a general commercial liability policy to a company (“FPI”) contracted by the City of Alton to launch fireworks. FPI procured a certificate of insurance, which named the City as an additional insured. That certificate of insurance read: “[it] neither affirmatively nor negatively amends, extends or alters the coverage afforded by the policy (ies) described hereon.” Id. at 804. After a fatal accident during a fireworks display, the decedents’ families filed suit against a number of defendants including the City. The City then sought indemnification from T.H.E. The Seventh Circuit Court of Appeals found that the certificate of insurance alone afforded no insurance coverage.
The operative phrase in [the] disclaimer is the language stating that the certificate does not alter, amend or extend the coverage of the underlying policy. The phrase puts the insured on notice that the insurance contract will be governed by the terms of the underlying policy and not by the certificate itself. The certificate issued to the City . . . contained adequate warning that the insured could not simply rely on the certificate for the terms and conditions of coverage.
Id. at 806.
The best business practice to assure that an entity has been added as an additional insured would be to require an endorsement to a policy being provided rather than just a certificate of liability insurance. Thereafter, to assure that the policy stays in effect and that there are no changes to the policy, a current certificate of liability insurance should always be retained. In addition, an additional insured covered under a policy by endorsement should assure that the insurance company be directed to provide it with a notice or a mailing of the certificate of liability insurance each time it is issued anew or each time it is issued pursuant to changes to the policy. This latter information will assure the property owner or contractor that the policy remains in effect and that changes have not been made that would impact the coverage afforded the property owner or contractor seeking the liability coverage as an additional insured.
Ultimately, many factors may impact whether coverage is provided pursuant to a certificate of liability insurance or a policy of insurance but getting started with the right documentation will always serve those seeking coverage well. As each policy and situation may be different in the analysis of coverage, please contact us at www.hwelaw.com if you have questions regarding this article or if we may provide analysis or advice to you with respect to an insurance coverage issue.