Policyholders mainly depend on certificates of insurance to prove that insurance coverage exists. However, in reality, the certificate of insurance has limited functionality as evidence of insurance coverage. While it may alleviate the potential for additional audit premiums, it is misused and over-valued and can easily leave the recipient with a false sense of security.
Limitations Of These Certificates:
There are, however, certain issues and limitations with certificates:
Possibly Compromised Limits:
The limits of liability shown on the certificate of insurance are the exact amounts as shown in the insurance policy when issued. What you will not see is any reduction resulting from a claim and the reduced limits. A certificate is never adjusted to reflect any reductions in limits because of any claims.
It does not reflect subsequent changes:
The certificate contains information on the date of issuance. The next day, either the first named insured or the insurance company could make changes and there is generally no legal obligation on the part of the insurance carrier or its legal representative to provide any notice of changes or cancellations. Some of the changes can be quite significant including: cancellation due to non-payment, at the insured’s request, for underwriting reasons or the exhaustion of the policy limits; reduction or removal of certain coverage or limits from within the policy; or the removal of additional insured status, waiver of subrogation, or primary and non-contributory.
Policy Terms, Conditions Limitations or Requirements:
Every insurance policy will contain terms, conditions, limitations or requirements that can cause major coverage defects if not known or properly handled. As a certificate holder, you may not know if your required endorsements, which were properly added or what the requirements are for you to have status as an additional insured. It is imperative to have some understanding of these from another source, as they will most likely not appear on a certificate.
Other States Coverage:
Workers compensation insurance is state-specific and the certificate may not list all the states for which coverage is required and afforded. This can become an issue in dealing with claims, audits and liability exposures.
Agents and brokers may indicate that certain coverage or provisions, provided when, in fact, they are not. This can result in a denial of a claim by the insurer. A claim dispute can consume time and money and whether or not you will prevail is subject to many factors, such as jurisdiction, applicable state laws and court interpretations.
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