Protection or Greater Risk?

An important part of any corporate risk management strategy is working with safe,
reliable vendors and contractors. One critical step towards this goal is ensuring
that those vendors carry and maintain the required insurance coverage. Merely
collecting insurance certificates from vendors, however, is only a partial solution.

Unless each certificate is carefully reviewed and scrutinized, the company hiring
the vendor may not in fact be covered by that vendor’s insurance policy.

To better understand the difference between collecting certificates as opposed
to ensuring full vendor insurance compliance, it is necessary to read the standard
certificate language as follows:

The Acord 25 (2009/09) states:

“ This certificate is issued as a matter of information only and confers
no rights upon the certificate holder”

It goes on further to state:

“ If the certificate holder Is an ADDITIONAL INSURED, the policy(ies)
must be endorsed… A statement on this certificate does not confer
rights to the certificate holder In lieu of such endorsement(s).”

The language is simple. Simply collecting a certificate of insurance from a vendor
does not mean that the vendor is in compliance with the hiring organization’s
insurance requirements unless the next, and most important, step is taken. This
step is manually reviewing and scrutinizing every policy endorsement, especially
the additional insured endorsement, to guarantee that coverage is afforded the
additional insured entity in case of a vendor accident. Even though a vendor’s
contract or purchase order with a client may require that vendor to carry liability
insurance and name the client as an additional insured, there is no guarantee
the vendor’s insurance policy actually confers that coverage. There are so many
endorsements in use today, and so many differences between those endorsements;
careful review and scrutiny must be given every single certificate and endorsement.
Otherwise, there is only the illusion of coverage.

Once organizations have identified this potential loophole in their vendor
compliance program, the next step is finding a cost-efficient and reliable method
to carefully review every certificate. Insurance industry knowledge and experience
are required to understand the language in these key endorsements to determine
if they not only meet an organization’s requirements, but also protect the
organization in the event the vendor is involved in an accident leading to loss.