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Certificates of Insurance PDF Print E-mail
Articles - Contractors Insurance
Article Index
Certificates of Insurance
A.M. Best’s Ratings
Financial Performance Ratings (FPR)
General Liability
Occurrence vs. Claim Made
Workers Compensation
All Pages

If You Build lt, You Can Be Sued!

Thanks for reading my free report. I know you will learn a few valuable tips about certificates of insurance. I have been in the insurance industry for many years as a contractors insurance agent serving the needs of Contractors and Small Business owners; also my number one priority is to make sure my clients stay informed.

This report is intended to be a guide to Certificates of Insurance, whether you are giving a certificate to a government agency, general contractor, subcontractor, homeowner or you are receiving a certificate from a general contractor or sub-contractor. The report is divided into three general sections. They are:
  • A guide to the various sections of the certificate of insurance, what they mean and what to look for.
  • An outline and a check list so you can establish a procedure in your business to collecting and maintaining certificates of insurance.
  • An outline and a check list so you can establish a procedure in your business to collecting and maintaining certificates of insurance.
The last page is a contractors Certificate of insurance completely filled out. Please use this certificate as a basis of reference as we go through this book.

I made every effort to keep things simple and try not to use too many contractors insurance words, but insurance wording cannot be completely ignored. If you have questions please feel free to call. This subject it as important as it is complicated.

Over the years I have seen three attitudes towards contractors certificates of insurance.
  1. The contractor understands the importance of the certificate and takes great care in making sure it is handled correctly and has a "system" in his office that monitors the certificates.
  2. The contractor understands the importance of the certificate but is too busy to make sure it is done and hands the duties over to someone else in the office that is not trained to properly handle the job.
  3. The contractor does not understand the importance of the certificate and does nothing.
The truth is; Certificates of insurance, not handled properly can cost you hundreds of thousands of dollars.

Here Are A Few Examples Of How Certificates Can Cost You Money

  1. At the end of your policy period, your contractors insurance company has the right to audit your books. When the auditor comes in to look at your books he is trained to look for sub-contracted work. Since sub-contracted work is expensive to your company, it is very easy to find. He will then look for the certificate of insurance that corresponds to the work subbed out. If you cannot produce the certificate he will add the amount of sub-contracted work to your payroll, or gross receipts, in either case you will owe the insurance company an additional amount for your general liability insurance, this can add substantial amounts owed to the insurance company. This is an extra expense you did not plan on.
  2. Successful contractors take the cost of insurance into account when bidding jobs. If you are audited and have to pay an additional amount to an insurance company, your cost of insurance has gone up and the “extra” is not in your bids. The result: You did not make as much money as you thought you did, or you lost more money than you thought you did! Either way it is a lose-lose situation.
  3. In the event of a claim there are two ways to lose additional money.
    • If you do not get a certificate of contractors insurance from a sub that does not have coverage and your policy does not cover subs, the cost of this claim will be directly out of your pocket!
    • If your subcontractor does not have coverage and your policy does then the claim will go against you. When you purchase insurance for the company years, that claim will show against your record, since your cost of insurance is partly based on your claims history, your insurance will go up.
    • An outline and a check list so you can establish a procedure in your business to collecting and maintaining certificates of insurance.

Certificates of insurance are not to be taken lightly!

Starting on the next page we are going to go through each line of the certificate of contractors insurance so you will have an understanding of what all this means.

I have broken down the certificate into 14 parts, use the example on the back inside cover as we go along.

Acord Certificate of contractors insurance Item by Item

  1. Date - This is the date certificate was typed. If you request a certificate of insurance in November 02 and the certificate is dated August 02 you should ask for a newer certificate, why? A lot could have happened in the last 6 months. It also tells agencies usually get a request from the contractor and it should be recently dated.
  2. Producer - this is the agency that wrote the policy. There should be an agency name, address, and phone number and sometimes the agent’s name that wrote the policy.
  3. Insured - This is the person or the company name who owns the insurance policy. The complete name and address must be in the box. If the name or the address is not acceptable, make sure it has the corporations name on the certificate
  4. Companies Affording Coverage - This section is important. Read it carefully!

THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW.

This statement, which usually no one ever reads, is very important. The only way to actually know you are covered is to have copy of the entire contractors insurance policy, and the ability to interpret the exclusions. (We will talk about exclusions later on)
  1. Company A- This is the insurance company that is providing coverage. Look for the corresponding A in the co. ltr. Box on the left side of the certificate.
  2. Company B- This is the insurance company that is providing coverage. Look for the corresponding B in the Co. Ltr. Box on the left side of the certificate.
  3. Company D- This is the insurance company that is providing coverage. Look for the corresponding D in the Co. Ltr. Box on the left side of the certificate.
What do we know about these contractors insurance companies? Are they strong solid companies, or the verge of bankruptcy?

There is a source of information on all these companies. The A.M. Best Company is used throughout the industry to evaluate the financial strength of insurance companies.

INSURANCE COMPANY RATING

Insurance companies are given a grade, just think about the grades you received in High School or college. A, B, C, D, F. Insurance companies are given a financial report card by the A.M. Best Company.

An insurance company with less than an “A” rating can be a potential problem for two reasons. 1 there is a risk of the company going out of business, and, 2. If you work for the state, county or city, they will usually not accept any company with less than “A” rating. Also if you hire on as a subcontractor most general contractors will not accept any rating less than “A”. With some state government offices and general contractors not accepting your liability insurance, you will be limited to the type of jobs you can accept.

 
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