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Certificate of Insurance and Why You Need One

If you own a business and have worked with other businesses or taken loans you have probably been asked to produce a certificate of insurance (COI). A certificate of insurance is a legal document verifying insurance coverage is in place, also known as proof of insurance. Similar to how an auto ID card works for your auto insurance, the COI covers liability and property insurance.   The certificate gives very specific information regarding the insurance coverages in place such as the type of insurance that is covered, what company provides coverage, effective dates of the policy, and policy limits. When entering contracts with other businesses additional coverages may be requested like additional insured status or a waiver of subrogation.  The COI would state if the requested coverage were in place for these contractual requests. 

COIs have an important function in conducting business.  The COI protects you from third-party liability by stating the coverage that another business has in place. Third-party liability is any physical injury or property damaged caused by others. For example, if you are having your roof repaired and the roofer drops heavy materials and damages a visitor’s car, you would not want to be liable for the damage to the vehicle because you did not cause the damage . Obtaining a certificate of insurance from the roofer would ensure that they are carrying adequate insurance to cover any damage they may cause.  If they did not have liability coverage in this scenario, you would most likely be sued for the damage and could be held responsible for the cost to repair the damage.  Another example is when a bank loans you money to purchase property.  The bank wants to know they will be able to recover their losses in the event that the property suffers a loss, is damaged, or stolen. The COI proves insurance coverage is in place ensuring the interest of the bank is covered and they would be made whole.
Workers’ compensation adds another important element to Certificates of Insurance.  If you hired a contractor who does not have workers’ compensation coverage for their employees or themselves and they became injured on the job, they could potentially collect benefits on your workers’ compensation policy. If the injured employee of the subcontractor filed a claim against your policy your carrier might initially deny the claim but then the case could go in front of a judge.  The judge would apply state laws to determine if the injured party has coverage under your policy. In most cases the judge rules in favor of the injured worker and your workers’ compensation policy covers the claim.  Your auditor will likely request to see any 1099’s that you have issued  and the corresponding COIs for any third-party person or business who has done work with or for you. This can impact your premium, potentially leading to costly increases.  
Certificates of Insurance are very common in business. If you are completing work for another business or looking to secure any type of loan from a bank, you will need to provide one. If you are hiring someone else do work for you, it is best practice to always ask for their COI.  Anyone performing work that is not a direct employee should provide COIs. This will protect you in the long run and cover you if a third party causes property damage or bodily injury while performing their work. 
To obtain copies of your certificate of insurance, contact your Agri-Services Agency representative at 1-877-466-9089.