Understanding Insurance Policies for Business Owners, Landlords and Property Managers: The Importance of Certificates of Insurance

As an insurance broker in California, I work closely with landlords, property managers, and business owners to ensure they have the proper coverage in place and use “risk transfer” techniques to minimize the impact on their insurance if possible.

One of the most critical aspects and most commonly used techniques of transferring risk is utilizing, understanding and collecting Certificates of Insurance (COIs).

If you are a property manager or landlord who deals with tenants, contractors, or subcontractors, failing to properly manage these documents could result in significant financial consequences, sometimes increasing your insurance premiums by as much as tenfold, or even denial of a claim or non-renewal of insurance in some circumstances.

Why Do Insurance Carriers Require Certificates of Insurance?

Insurance carriers request COIs to verify that all necessary parties carry proper coverage. When you work with tenants, contractors, or subcontractors, their liability and actions or work can impact your property and therefore, your insurance.

If a tenant, contractor or subcontractor is uninsured or underinsured and a claim arises, your own insurance may have to absorb the risk, leading to higher premiums or policy cancellations.

Who Needs to Collect Certificates of Insurance?

If you fall into any of the following categories, you should be regularly collecting COIs:

• Property Managers and Landlords – Ensure tenants carry appropriate liability coverage consistent with the attorney designed lease that should be in place for all tenants.
• Contractors Using Subcontractors – Verify subcontractors have their own general and automobile liability and workers’ compensation policies at a minimum, as detailed in their attorney prepared contract and that the limits meet any contract requirements for the project.
• Business Owners Who Hire Workers – This applies to ANYONE you hire, not just an independent contractor. If you pay them to perform a service, they need to carry their own insurance - general liability, automobile liability and workers compensation at a minimum and your attorney should be consulted as to their recommendations as to coverages and limits.

What Happens If You Do Not Collect Certificates of Insurance?

Failing to collect and maintain proper documentation can have severe financial implications. For example, a property manager overseeing commercial buildings was facing a tenfold increase in their insurance renewal premium. Their insurer required documentation proving that all tenants had appropriate insurance coverage consistent with their lease requirements. The insured failed to provide certificates for all of their tenants.

Despite having the correct coverage structure in place, the missing documentation classified these tenants as uninsured risks, leading the insurance carrier to re-evaluate the client's coverage. The result was an increase in premium costing tens of thousands of dollars annually.

A general contractor is hired to remodel a structure. The general liability policy carried by the owner (in the very FINE PRINT) states that the only way there is coverage for any work is if the contractor is insured with certain minimum limits and coverages and the contractor’s insurance names the property owner as an additional insured. The property owner failed to obtain the correct certificates resulting in the denial of a claim.

How to Properly Read a Certificate of Insurance

Understanding a COI is crucial for ensuring compliance. Here are key sections to review:

1. Named Insured – The entity or person covered by the policy.
2. Policy Effective and Expiration Dates – Ensure the coverage is active during the period of your contract or lease.
3. Type of Coverage – General liability, workers’ compensation, automobile liability, professional liability, etc.
4. Policy Limits – The maximum amount the policy will pay for a claim.
5. Additional Insured Endorsement – Ensures you are covered under the tenant’s or contractor’s policy and gives you certain rights - the additional insured form MUST BE ATTACHED TO THE CERTIFICATE.
6. Certificate Holder – Should be listed as you, your trust, the property owner or your company to confirm compliance.
7. Cancellation Clause – States how much notice you “may” receive if the policy is canceled.

Steps to Stay Compliant and Avoid Costly Increases

To prevent unexpected insurance issues, follow these best practices:

• Collect COIs from all applicable parties before entering agreements. Utilize the services of a competent attorney to draft contracts, leases, etc. Require proof of insurance from tenants, contractors, and subcontractors before signing leases or finalizing contracts, allowing them to work on your premises or giving the tenant’s a “key” to the leased location.
• Maintain an organized record of all COIs and update them regularly. Create a filing system, whether digital or physical, that allows for easy access and review. Set calendar reminders for expiration dates and request renewals well in advance.
• Ensure coverage levels meet your insurer’s requirements. Each insurance carrier and contract will have specific liability  coverage requirements. Review these with your broker and attorney to ensure tenants and contractors maintain appropriate coverage limits.
• Review COIs for accuracy and completeness before accepting them. Verify all necessary fields, including the named insured, policy effective dates, policy limits, and additional insured endorsements. Any errors or missing details can cause issues in the event of a claim.
• Work with an insurance broker to ensure compliance with industry standards. Brokers, along with your attorney, can help you interpret COIs, determine if additional coverage is needed, and handle negotiations with insurance carriers to avoid premium increases.
• Communicate requirements clearly with tenants and contractors. Make sure everyone you do business with understands the importance of providing valid COIs. Provide written guidelines outlining what documentation is required and deadlines for submission.

Final Thoughts

Neglecting COIs can result in serious financial consequences. Whether you are a landlord, property manager, or business owner using contractors, maintaining proper documentation is essential. 

Avoid unnecessary premium increases and protect your business by staying proactive with your insurance documentation.  Make YOUR insurance the second line of defense using these “risk transfer” techniques and if you need some help, please reach out to me directly here on LinkedIn.