Certificates of insurance do not necessarily ensure the insurance coverage they describe. Nonetheless, they are routinely required and accepted as evidence of other parties’ insurance coverage in the construction context. But what happens when a certificate of insurance is wrong, when it describes a party as having coverage that the policy does not provide?
Courts are split. Some find that insurance coverage is governed solely by the insurance policy. In other words, if the certificate of insurance (the “COI”) is wrong, bad luck for the party who relied on it, no coverage. Other courts have found that, under some circumstances, the insurer may be bound by what is represented in the COI, even if it contradicts or extends the policy. Although this provides room to argue in some states that coverage exists where the policy does not give it, the obviously better position is to have coverage under the policy itself.
Ohio is one of the states where an insurer may be bound to provide the coverage described in a COI even if that coverage is not included in the actual insurance policy. The Ohio Supreme Court has held that, where a COI described certain life insurance coverage under a group insurance policy, the insurer would be bound to provide the coverage described in the COI unless the insured knew or should have known of the lack of coverage. Pedler v. Aetna Life Ins. Co. (1986), 23 Ohio St.3d 7, 490 N.E.2d 605. This principle has been applied by other Ohio courts in contexts other than group policies and might be found to apply in the construction insurance context—where COIs are used all the time.
In a later Ohio case, regarding insurance coverage for a fireworks display, the court found that the COI bound the insurer to provide coverage despite the conditions of the underlying policy not being met. In particular, a local county fair that sponsored fireworks required and received a COI affirming that the fireworks company had insurance in force and that the county fair was named as an additional insured. It did not state, however, that the policy required copies of such certificates to be received by the insurer no later than 24 hours before the fireworks display in order for coverage to exist. The court held that the insurer was bound to provide coverage relating to a claim by a person injured by the display because the COI described the insurance as being in force and because the county fair had relied on the COI in permitting the display to go forward.
Despite these cases providing a basis in Ohio to argue for coverage described in a COI which is not provided in the actual policy, parties relying on COIs need to be aware of the risk that coverage may be denied in such cases. At this point, no Supreme Court case in Ohio states that, for example, where a COI is issued stating that someone is an “additional insured” but no endorsement for such is issued by the insurer, the insurer is bound to provide coverage. The principle the Court applied in the Pedler case is that the COI will bind the insurer, unless the insured knew or had reason to know it had no coverage. Many COIs in the construction context state that: “This certification 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.” It would not be a stretch for an Ohio court to hold—as some in other states have in the face of such language—that the insured has reason to know that the insurer is not bound by the COI.
So, what can prudent owners and contractors do to lessen their risk? Many factors will come into play to determine what kinds of actions make sense, for example, the financial strength of the party providing the insurance, the size of the potential exposure and whether or not any special coverages are required. Some things owners (when receiving COI’s from contractors) and contractors (when receiving COI’s from subs) can do are:
- If there are to be special endorsements to the policy for special coverages or to identify additional insureds, require a copy of the endorsement itself to be provided. Note that all additional insured endorsements are not created equal. Some provide less protection to additional insureds than others. An option is to specify that a particular ISO additional insured endorsement is required.
- Note when the coverage expires and require renewal evidence for subsequent policy periods.
- If a COI is the only evidence of insurance that will be provided, at a minimum, add language to the contract stating that the owner or contractor (whichever is applicable) is relying on the description of the insurance coverage in the COI in permitting the insured contractor to proceed with its work on the project.
- Have removed from the COI common language stating that “This certificate is issued as a matter of information only and confers no rights upon the certificate holder."