Safe Solutions

Certificates of insurance are an important part of the roofing industry. Requiring a certificate of insurance from a subcontractor enables you to better manage your business relationship.

Certificates of insurance are provided or obtained to verify the existence of insurance coverage and determine whether existing coverage limits are adequate and meet contract requirements. They are issued as a matter of information only and confer no rights upon the certificate holder. You would be the certificate holder when you obtain a certificate from a subcontractor.

Ensuring coverage

Why use certificates of insurance? If you don't require a certificate of insurance before a subcontractor begins work, you later may discover the subcontractor has no insurance, and your insurance company may have to pay for all or part of the losses arising from the subcontractor's negligent actions from which you might otherwise have been shielded.

For example, if your subcontractor did not carry workers' compensation insurance and one of his employees was injured on your job site, your workers' compensation policy would respond and your experience modification rate would be affected, which most likely would increase your insurance premium.

Because certificates of insurance should be reviewed when a project starts and at least once per year to verify the existence of coverage and determine whether existing coverage limits are adequate and meet subcontract agreements, you should formalize a review process and make it a routine function performed by one employee. Following are tips you should follow when reviewing certificates of insurance:

• Establish and document procedures to address situations when certificates of insurance are not received or in compliance. A letter should be sent to the subcontractor and all correspondence monitored until all requirements are met. It especially is important that a certificate of insurance contain an original signature and be given directly to you by the agent/broker or other representative authorized by the insurance company.
• Consider using specific measures to meet your requirements, such as not allowing work to begin until satisfactory evidence of compliance is received; withholding payment for work until all requirements are met; and terminating the contract unless satisfactory evidence of compliance is provided within a specified time period.
• Establish a reminder system of subcontractors' insurance expiration dates. A subcontractor's insurance policy could expire during a contract's term. The system should include a procedure for reordering the certificate of insurance at least 60 days before the policy's expiration date. This will ensure the coverage and limits in the contract at the beginning are maintained until the end of the project.
• Consider creating a filing system where certificates of insurance are filed in the project file alphabetically and/or by expiration date for easy follow-up each month.

A contract may require that a subcontractor be named as an additional insured. This can be stated in the certificate of insurance, but the policy must be endorsed to reflect this and the certificate of insurance also should indicate the endorsement form providing the insurance coverage.

Preferably, the applicable forms should be attached. Review the forms to determine whether they are consistent with contract requirements.

Comprehension

NRCA has produced an educational piece to explain certificates of insurance. This document can be found on NRCA's Web site at www.nrca.net/consumer/steep.aspx. Click on "Insist on seeing copies of the contractor's liability insurance coverage" to download and print the document.

By adding these procedures to your operations, the probability of receiving a fraudulent certificate of insurance or using an uninsured subcontractor can be mitigated.

Leslie Kazmierowski, CPCU, is NRCA's insurance programs manager.