Additional Insured Status: Protecting Yourself When Adding a Company

Black's Law Dictionary defines a Certificate of Insurance as a "[d]ocument evidencing fact that an insurance policy has been written and includes a statement of the coverage in the policy in general terms." But for those wanting to be added as an additional insured, the certificate is almost always meaningless without the actual insurance policy being endorsed. And that is where many companies run into trouble.

For some reason, the business community believes Certificates of Insurance are ironclad proof that another entity either has the purported insurance coverage, or worse, has added the company as an additional insured. Many lawyers, and a number of courts, don't believe these certificates are worth the paper they're printed on.

As one commentator noted, "the issuance of certificates is one of the more dangerous documents that float between insureds, insurers, and a myriad of third parties." The reason for the danger is that when there is a conflict or discrepancy between a certificate and the actual policy, the latter controls. Remember, the policy can be changed without any consent from the certificate holder.

Generally, these documents are mere evidence of the insurance coverage the policyholder has at the very moment the certificate is issued. Insurance companies almost universally do not issue these certificates, and many times do not know they have been issued. If the insurance is cancelled the next day, the certificate is meaningless.

Even more dangerous are companies that rely on these documents as proof they've been added as an additional insured to another's insurance policy. The standard ACORD form states that the certificate cannot extend or alter the coverage. The normal procedure requires the broker to submit a request to the insurer to add an entity as an additional insured, which then endorses the policy. Without the endorsement, your chances of being an additional insured are slim, regardless of what your contract may require or what the certificate may say. In short, the only safe thing is to demand to see the policy and endorsement.

On the flip side, many businesses find it burdensome to add entities as additional insureds to their policies. They simply call their broker and ask to have the opposing business added, receive a Certificate of Insurance, and then forward it to that entity.

For example, a commercial property owner is repairing fire damage. In negotiating a construction contract, it asks the general...