In the building and construction industry and in countless other fields, parties to contracts often require other parties to obtain and provide proof of insurance to cover their work and/or any liability that might arise in relation to that work. One of the most common examples of such an arrangement is a general contractor who retains a subcontractor and requires the subcontractor to provide proof of insurance. Such arrangements often include a requirement that the subcontractor procure an insurance policy naming the general contractor as an additional insured.
Proof of the issuance of the required insurance is often provided in the form of a “certificate of insurance” issued by the producer, agent, or the insurance company itself. However, these certificates have surprisingly little legal effect and can instead mislead parties into believing that they are protected by an insurance policy that may not provide them with any coverage whatsoever. In fact, in some jurisdictions, a certificate of insurance may not be worth the paper it’s printed on.
In many jurisdictions throughout the United States, the general rule is that a certificate of insurance is not legally binding and cannot create new coverage or legal obligations that are not set forth in the language of the policy itself. For example, in Moleon v. Kreisler Borg Florman Gen. Const. Co., 758 N.Y.S.2d 621, 623 (N.Y. App. Div. 2003), a subcontractor’s insurer issued a certificate of insurance to the general contractor indicating that the general contractor was an additional insured under an insurance policy issued to the subcontractor. However, the certificate of insurance contained a disclaimer stating that “this certificate is issued as a matter of information only and confers no rights upon the certificate holder [and that] this certificate does not amend, extend or alter the coverage afforded by the policies.” Relying on this disclaimer, the New York Supreme Court, Appellate Division held that the general contractor was not an additional insured because the policy itself did not name the general contractor as an additional insured. In other words, the representation on the certificate of insurance that the general contractor was an additional insured was meaningless.
On the other hand, the Washington Supreme Court recently reached the opposite conclusion in a case with substantially similar facts. It reasoned that the certificate of insurance was issued for a specific purpose: to inform the recipient that it was an additional insured under the policy. Thus, if the court were to give effect to the disclaimer that the certificate did not extend or alter coverage under the policy, it “would render issuance of the certificate—and the specific representation within it—pointless. . . . The certificate would have no informational value at all. All it would do is ‘set a trap’ for the certificate holder.” T-Mobile USA Inc. v. Selective Ins. Co. of Am., 450 P.3d 150, 156 (Wash. 2019).
Indiana courts have not directly addressed this question, but have adopted a general rule that “ordinarily, the presentation of a certificate alone does not create coverage or legal duties [and] . . . it has even been stated that a certificate of insurance cannot contradict the terms of a policy.” Am. Family Ins. Co. v. Globe Am. Cas. Co., 774 N.E.2d 932, 939 (Ind. Ct. App. 2002).
Because of the substantial uncertainty surrounding the legal effect of a certificate of insurance, a party seeking proof of coverage should avoid relying on a certificate of insurance whenever possible. Instead, the prudent course of action would be to request a copy of the actual policy document in order to verify that the necessary coverage is in place.
If you need assistance navigating this process or have questions about what this means for your company, contact your DSV attorney or Alex Trueblood at firstname.lastname@example.org.
***The information contained on this website is for informational purposes and is not intended as formal legal advice and cannot be relied upon as such. No attorney client relationship is established or intended as a result of the information contained on this website.***