A Certificate of Insurance, otherwise known as a COI (or if you’re in the insurance biz a cert), is a document that provides proof of coverage for the named insured, as shown on the certificate, to another person or entity known as the certificate holder, also shown on the certificate. Seems like a simple document so why does it cause so many problems at audit time?
Certificates are issued for many reasons but for the purpose of this post we’re only going to discuss some of the problems associated with certificates and workers compensation audits. When an employer is asked to provide a certificate of insurance it’s usually because they’re performing some type of service for another entity, the certificate holder. So the certificate holder will ask for and retain a copy of the named insured’s certificate for future reference.
You’ll find that most entities involved in swapping certificates of insurance will be those in the construction industry. Certificates of insurance pose special problems for contractors. A general contractor, the one doing the hiring, will contract with another contractor, the subcontractor, to perform a service and the general contractor wants to make sure the sub carries workers compensation insurance. The reason’s pretty simple. In most jurisdictions a general contractor will be held responsible for employee injuries sustained by their subcontractor unless the subcontractor carries a valid workers compensation policy. In other words the responsibility flows up from the sub to the general.
In lieu of valid coverage from the sub the general contractors workers compensation insurance policy will respond to the injured subs employee just as though they were the employer. And when an insurance carrier may have to pay a claim (whether they do or not) they will be due a premium! And that’s where the workers compensation audit comes into play.
The purpose of an audit is to discover all rateable workers compensation exposure, appropriately apply that discovered exposure to the policy and collect any additional premium that exposure generates. In other words, if you have an uninsured subcontractor on the job, the generals workers compensation insurance company will pickup, at audit, the additional exposure and send the general an additional premium bill!
If the general can produce a valid certificate of insurance for the sub at the time of audit there will be no additional exposure (because the sub has a policy that will take care of his injured workers) and no additional premium generated.
Be sure to visit our website for detailed information on certificates of insurance, their limitations, who needs one and where to find them. And while you’re there pay special attention to our section on contractors and certificates of insurance.
Hope this helps out and thanks for reading!