Liability Insurance – I’m Covered (or am I?)

One of the most important provisions in a contract is the liability insurance provision. For the most part, the business owner relies on an insurance agent to advise what coverage is needed for a particular contractual obligation. The business owner then sets forth the insurance requirement in the contract/lease and states that the other side is to provide a “Certificate of Liability Insurance” as evidence of coverage.  But is that Certificate of Liability Insurance fully reviewed to confirm that the proper insurance and coverage has been obtained? Often the answer is no and unfortunately it is generally not discovered until such time as the insurance coverage is needed.

Liability Insurance

When you receive a Certificate of Liability Insurance the first thing that needs to be done is to compare the information on the certificate to the requirements of the contract/lease. If the contract/lease specified a minimum AM-Best rating for the insurance carrier, you should call your insurance agent to assure that the insurance company issuing the certificate meets that requirement. The name of the “Insured” should be the name of the other contracting party. If the names are different check the Description of Operations portion of the Certificate of Liability Insurance for an explanation of the relationship between the insured and contracting party (i.e., a parent-subsidiary relationship).

Always check to see if the liability insurance is “Claims Made” or “Occurrence”. For most situation contracts require the Commercial General Liability to be on an “occurrence” basis. (The “OCCUR” box should be checked off). The “Claims Made” is typically used with professionals, such as architects and engineers.

Obviously, you want to make sure that the minimum coverage limits listed on the Certificate of Liability Insurance meets the requirements of your contract. If the contract required an umbrella liability policy those limits should also be indicated on the Certificate of Liability Insurance.

The effective date and expiration date need to be reviewed to make sure coverage will be in place for the entire term of the contract. For any long-term contract or contract in which the other party requests an extension, prior to granting additional time, you should review the Certificate of Liability Insurance and make sure that renewal certificates are received before the expiration date. Also, check the “Cancellation” portion on the bottom of the certificate to make sure it is consistent with your contractual requirements.

Any policy numbers listed on the Certificate of Liability Insurance should match the number on any provided endorsements. One of the most important endorsements you should get is the “additional insured endorsements” which should list you as an additional insured.  Also, if the contract/lease requires a waiver of subrogation, you need a separate endorsement as a designation on a Certificate of Liability Insurance does not confer rights to the holder in lieu of an actual endorsement.

One of the biggest mistakes that business owners make is they see their name listed under “Certificate Holder” on a Certificate of Liability Insurance and therefore think they are covered. If you need help with reviewing Certificates of Liability Insurances, or setting forth basic insurance provisions in your contracts we are here to help. If you have any questions about this article or would like your insurance policy reviewed, please contact Gerald McDonald at or call 937-223-1130.

AUTHOR: Gerald McDonald