Additional Insureds Beware: A Certificate of Insurance Does Not Guaranty Coverage

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This is the first in a 2-part series on the use of certificates of insurance as evidence of liability coverage for contractors on construction projects. The second part of the series will discuss the potential impact of recent Connecticut legislation governing certificates of insurance.

It is common practice on construction projects for owners, general contractors and even higher-tier subcontractors to require those who agree to perform the contract work to procure and provide proof of specified insurance coverage before they commence the work. For ease of reference, this article will use the example of the insurance provisions of a typical subcontract between a general contractor and a subcontractor. Such insurance provisions often include a requirement that the subcontractor provide under its commercial general liability (“CGL”) policy additional insured coverage to the general contractor, owner, and sometimes the owner’s lender. The subcontractor is also usually required to verify its compliance with the subcontract’s insurance requirements by providing the general contractor with a certificate of insurance (“COI”).

Such COIs, which are generally issued by the subcontractor’s insurance agent, typically list the type of policy, policy number, carrier name, and commencement and expiration dates of each insurance policy issued to the subcontractor as required by the subcontract. The COI will also list the names of those parties who are required by the subcontract to be included as additional insureds under the CGL policy. Once the general contractor receives a COI indicating that the subcontract’s insurance requirements have been satisfied, the general contractor, now comfortable that the proper coverage is in place, usually files away the COI and notifies the subcontractor that it may commence the work.

However, if additional steps are not taken to make sure that the required coverage is actually in place, the general contractor might be surprised to learn after a loss has occurred that the subcontractor’s CGL policy actually provides no coverage at all to the general contractor as an additional insured. Despite what might be indicated in the COI, a general contractor will not be considered an additional insured unless the subcontractor’s CGL policy includes an appropriate additional insured endorsement. Even if an appropriate additional insured endorsement has been procured, coverage for the general contractor might be denied for other reasons. For example, coverage for the loss might have been excluded under the policy terms, or the policy might have been cancelled prior to the loss. When additional insured coverage is denied, the general contractor might endeavor to sue the subcontractor’s insurer and/or agent and seek coverage or damages based on its reliance on the COI. Such suits are rarely successful, however, unless the insurer had actually issued an additional insured endorsement covering the general contractor, and there were no other valid grounds under the policy for the insurer’s denial of coverage.

First, in most jurisdictions a COI is not considered an insurance policy, and it does not, in and of itself, provide coverage where it would not otherwise exist. Second, the COI almost always includes disclaimers such as the following: “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.” As long as the insurer can demonstrate a valid reason under the terms of the policy to deny coverage, such disclaimers are typically applied by the courts to exonerate insurers, agents and brokers from claims for coverage or damages by additional insureds based on their purported reliance on the COI. In such instances, the general contractor would then be forced to make a claim under its own CGL policy, which would often entail paying a deductible or self-insured retention, as well as a potential increase in premiums.

Accordingly, before allowing the subcontractor to commence work, the general contractor should require the subcontractor or its insurance agent to provide, in addition to the COI, a copy of the subcontractor’s entire CGL policy, or at least a copy of the applicable additional insured endorsement. Although some subcontracts require the subcontractor to provide the general contractor with full copies of their insurance policies, at least on demand, such provisions are rarely enforced. The terms of the additional insured endorsement should indicate whether the general contractor is in fact an additional insured under the CGL policy. However, because the provisions of CGL policies can be involved and difficult to interpret, it would be prudent for the general contractor to provide a copy of the policy or endorsement to its counsel, insurance agent or risk manager for review.

There is a good reason why the general contractor should demand a full copy of the subcontractor’s CGL policy before the work commences. Even if the policy includes an endorsement providing coverage for the general contractor as an additional insured, the policy might also contain material or unusual exclusions that could nevertheless negate coverage. Neither the COI nor the additional insured endorsement would provide notice of such exclusions. For example, a roofing subcontractor’s policy might exclude coverage for work on roofs over a certain height. If the subcontract entails performing roofing work above the height threshold in the exclusion, both the general contractor and the subcontractor would likely be denied coverage for a loss arising from that work. Therefore, a general contractor should never solely rely on a COI if it intends to be included as an additional insured under its subcontractor’s CGL policy, and expects to be covered under that policy for risks arising from the subcontractor’s work.


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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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