Signs of a Suspicious Certificate of Insurance

More and more businesses are requiring their vendors and partners to provide proof of insurance before services are rendered or at the time of contract signing. In today's business world, a certificate of insurance or COI is the common way for a business to display their insurance coverage. A certificate of insurance is basically a snap shot of a company's insurance coverage on a given day. Yet, in today's business world you can never be too careful, because a company can provide you with a certificate even though they are not coverage.

The most obvious sign of certificate that needs to further investigated is one that's hard to read. The best way to avoid this is to require the entity to mail a certificate as well. Faxed copies can sometimes create a slight distortion, but it should still be readable. Certificates that use a tiny font, blanks or portions, or has lines through important sections should set off a mental red flag.

Be suspicious of any certificate that has a valuation date that is more than 2 months old. Preferably, you want a valuation date that is within one week of the goods being purchased or service beginning. The valuation date is the date of reference for the policy. In other words this the coverage and limits that this company has on that particular day. The valuation date is located at the top right side of the certificate and it is important that you pay attention to this date. Many vendors will give you a certificate that 6 months old or older, and the policy could have changed since then.

Check the dates and limits. If the policy limits or dates are in mixed up you should definitely follow up with the certificate producer or the vendor. For example, if they certificate seems to have the occurrence limit is $2,000,000 and the aggregate limit is $1,000,000, you need to require the vendor to verify the policy. Do not allow the vendor or their producer to simply provide you with a new certificate. Also, policy periods for most businesses extend for a year. So, policies that do not extend for a year should be questioned.

If you think you have a certificate that should be investigated, the first thing you must do is contact the business that the certificate is for and request a copy of their "declaration of insurance" page or the actual policy. Also require the vendor to name your business as the "certificate holder," and if possible as an "additional insured." Certificate holder shows that you have a third party interest in any changes to the policy, so you are notified if the policy is canceled or changed.

It's hard to keep an eye on everything when you are a small business, hopefully the understanding and evaluating certificates of insurance just got a little easier.