Understanding the Terminology
The legal jargon surrounding insurance policies and associated contracts can be confusing for many, making it difficult for the average consumer to know exactly what they’re purchasing. In order to make an informed decision and choose the right liability coverage, it’s essential to first understand the different terms.
Here are some of the common terms you need to understand about a liability insurance policy.
What is general liability?
General liability is a form of comprehensive insurance that offers coverage in case of damage or injury caused by your work, equipment, or supplies on your jobsite. For example, if a worker tosses a shingle off a roof and hits someone, or if your crew leaves a pile of wood on the lawn and someone trips and falls, it may result in a lawsuit against you as the employer/contractor. These types of accidents happen all the time, and a general liability policy protects you and your business financially in such cases.
General liability insurance does not cover personal injury to your own employees. (That is covered by workers’ compensation, which is a different type of insurance.)
What is a policyholder?
A policyholder is a person or company who purchases an insurance policy. The policyholder is often referred to as the “named insured.” The policyholder is responsible for paying the insurance premiums and can make adjustments or changes to the policy.
What is a Certificate of Insurance?
A Certificate of Insurance (COI) is a document that proves an insurance policy exists. The standardized Certificate of Insurance form, called the Acord 25, is issued by the insurance company or broker and contains all the important information needed to confirm coverage is in place, including:
- Name of policyholder
- Policy number
- Policy effective date and cancellation/expiration dates
- Type of coverage
- Coverage limits
- Policy coverage limitations
- Additional insureds
Your entire insurance policy contract can be many pages long. The COI, however, is a one-page document that summarizes the most vital information contained in your policy.
Insurance Certificate Holder vs. Additional Insured
|Insurance Certificate Holder||Additional Insured|
|The person who possesses the Certificate of Insurance in order to prove they (the policyholder) are covered by an insurance policy.||Anyone (not the policyholder) who is additionally covered by the insurance policy and can make a claim.|
Insurance Certificate Holder
The insurance certificate holder is the individual who receives the COI from the insured, establishing that the certificate holder has proper proof of coverage. COIs, however, don’t alter the insurance policy in any way nor does it permit the certificate holder to make a claim on the policy; it only provides proof of insurance.
Additional insured in reference to general liability insurance policies, provides coverage to other people or groups who weren’t originally named in the policy. In short, an additional insured endorsement:
- Applies to anyone who is not the policyholder, but is covered by the insurance policy.
- Protects the additional insured under the named insured’s policy and can thus make a claim as the result of a loss.
What are the Benefits of an Insurance Certificate Holder Status?
1. The policyholder is not liable for any loss or damage beyond the sum insured.
This stops the claimant from suing the policyholder for amounts above and beyond the insurance payout sum, which may also positively impact a business owner’s bottom line.
2. A certificate holder may recover damages from an insurer who has failed to pay out on a claim.
If an insurance company refuses to pay a claim, the COI holder has the ability to potentially recover damages from the insurer.
3. It can be used in place of an indemnity bond when making payments under contract laws.
An indemnity bond gives the holder the right to collect any amount from the principal that the insurer has paid out in a claimed situation. In the case that the insurance company must pay another contractor to complete the project, they will make a demand on the bonded contractor that they cover this expense.
4. An insurance certificate holder can help protect you from damages claimed that have been caused by burglaries, fires, and natural disasters.
Even the most careful and organized job sites can be unexpectedly struck by fires, tornados, and other natural disasters. Even losses caused by burglary are covered, so your business needn’t collapse in some of these worst-case scenarios.
5. Homeowners who ask for an insurance certificate holder are less likely to be victims of crime.
Unscrupulous contractors are rarely insured, and homeowners who hire contractors without verifying insurance often have no recourse if the work is shoddy or incomplete. Asking for verification of insurance protects homeowners from being exploited by criminals posing as contractors. Having an insurance certificate holder can result in more work for fully insured contractors as a result.
6. Improved risk management all around
Insurance certificate holders can also give you peace of mind by providing protection against liability claims like slip-and-fall accidents on job sites. If you’re found to be responsible for damages occurring to a third party, your insurance will cover those damage costs and medical costs associated with your business.
What are the Benefits of an Additional Insured Status?
1. Protects you in the event of a lawsuit
An additional insured status extends coverage to people not specifically named in the original policy. That is, the policy will pay out for claims and damages related to the additional insured in the case that the additional insured are also liable.
In addition, a waiver of subrogation is a special type of endorsement on a property/casualty insurance policy. It restricts the insurer from taking legal action against the additional insured responsible for the loss. Essentially, it’s a guarantee that your insurance policy will protect the third party in case a claim is being made against them in relation to work carried out on your behalf.
2. Prohibits people from suing you for damages that they caused themselves
Job sites can be hazardous not only to your crew, but pose a threat to vendors, subcontractors, and anyone else who might set foot on the property. An additionally insured endorsement adds extra coverage for unpredictable circumstances. A person responsible for any damage to your business can’t then cause further issues by making a claim against you for any effect the damage they caused had on them.
3. Reduces the cost of premiums
In the course of a single job, you may have to cover many different third parties or subcontractors. Naturally, every time an additional insured is added to an insurance policy, the cost rises. If you’re having to add a hundred or more separate names per job, that adds up quickly. Each subcontractor will require a COI from you and that can take time as well as increase the cost.
Instead of separately listing each and every person on the COI, a simpler and more comprehensive method is to add a “blanket additional insured” clause, which covers all third parties without having to have their names listed. You can get blanket coverage for far less than you could get coverage for a large number of people. Blanket coverage is less expensive than individual policies for subcontractors.
4. Allows you to avoid expensive litigation costs if someone is injured on your property
If your business is sued for a covered claim, the policy will cover the costs of your defense (i.e., attorney’s fees and related defense costs).
5. There is no policy limit on what type of coverage it provides
Whether the third party is affected by property damage, personal damages, bodily injuries, or medical bills, your blanket additional insureds coverage is not limited by the type of damage.
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