Certificates of Insurance Don’t Deliver the Protection they Promise for Associations and Managers

By Stephen Marcus and John ShafferWe’ve all heard that oral contracts “aren’t worth the paper they’re written on.” The same might be said of the certificates of insurance condo associations demand from their contractors: The certificates aren’t what they appear to be; they don’t provide the protection boards and association managers think they are getting.Certificates of insurance purport to offer three assurances:

• That the contractor has a specified amount of liability insurance;
• That the association and the manager or management company are named as “additional insureds” on the contractor’s policy; and
• That the insurance carrier will notify the association and the manager if the contractor’s insurance is cancelled.

Only the first of these assurances – that the contractor has insurance coverage ─ is “worth the paper it is written on.” While the certificate says the association and manager will be “additional insureds” and will receive notice if the policy is cancelled, it doesn’t guarantee either one.Shouting “I can fly” before jumping off a roof won’t prevent you from breaking a leg, or worse; relying on a contractor’s certificate of insurance could produce an equally hard landing.Why Is Additional Insured Status Important?There are two primary reasons associations and managers want to be additional insureds on a contractor’s policy:

• If they are sued for damages related to work the contractor has done for the association, they can file a claim under the contractor’s policy rather than the association’s. Claims filed with your insurance carrier will count against you ― in higher premium costs, larger deductibles, and possibly in difficulty obtaining coverage. If coverage comes from your contractor’s policy, it’s his claims record, not yours, that will be dinged.
• The association’s contracts with vendors contain an indemnification provision, requiring them to indemnify the association for any loss resulting from the vendor’s actions. Additional insured status provides a source of funding to back up the indemnification promise.

Clear WarningAdditional insured status isn’t automatic; you have to ask for it, and you can’t assume you have it, even if the contractor’s insurance agent checks the box on the certificate of insurance saying you do. You can be added to the contractor’s policy only through an endorsement issued by the insurance carrier. That’s hardly a secret; the insurance certificate itself discloses this information at the top of the form in bold type stating:

“This certificate is issued as a matter of information only and confers no rights upon the certificate holder. This certificate does not affirmatively or negatively amend, extend or alter the coverage afforded by the policies below. This certificate of insurance does not constitute a contract between the issuing insurer(s), authorized representative or producer, and the certificate holder. Important: If the certificate holder is an additional insured, the policy(ies) must be endorsed.

The disclosure could hardly be any clearer. If it were a neon sign, the light would almost be blinding.The insurance certificate doesn’t flash the same insistent warning about the association’s right to receive notice if the contractor’s policy is canceled, but the signal is equally clear. The certificate states that a cancellation notice “will be delivered in accordance with the policy provisions.” Translation: If the policy itself doesn’t require notice to additional insureds, you can’t assume you’re going to get it, even if the insurance certificate says you will. The insurer will be required to send the association and manager a cancellation notice only if it issues an endorsement agreeing to do so.Information OnlyACORD, which develops standardized forms and provides other services for the insurance industry, explains this clearly in a 2010 memo, which notes: “Only a policy can obligate an insurer to provide notice of cancellation. Unless a policy’s provisions explicitly provide for notice to a party also listed as the certificate holder on the certificate of insurance, the insurer is not obliged to notify that party. Certificates of insurance may be viewed as a summarized reflection of an insurance policy and are only informational,” the memo emphasizes, adding: “The policy is the definitive source for its provisions, not the certificate.”That is the key point we’re trying to emphasize here, and it applies equally to additional insured status and cancellation notice for associations and managers: You need policy endorsements for both.Some insurers issue the endorsements quickly – within a few days of receiving the request, according to Robert Masse, a condominium insurance specialist at WTPhelan (who provided invaluable information for this article). Others, he says, can take several months to produce them. The costs vary: Some charge a flat fee of $500 for a “blanket” endorsement; others charge $150 for each individual endorsement issued.The contractor’s insurance agent has to request the endorsements. To condo associations accustomed to receiving outstanding service from their insurance agents, that doesn’t seem like a big deal. But the contractor’s agent has no business relationship with the association and its manager and no incentive to go the extra mile for them. Obtaining insurance endorsements represents additional work for which the agent isn’t going to be compensated. And while the contractor may have some leverage over his/her agent, you don’t.It’s not surprising that many agents simply check the boxes on the insurance certificate and don’t bother to obtain the endorsements needed to turn the certificate’s assurances into enforceable obligations. What is surprising and unsettling is that so few associations and management companies insist on them.Due Diligence RequiredThis is a complicated area, fraught with risks for condo boards and managers. We offer these suggestions and cautions:

1. Don’t rely on the certificate of insurance the contractor provides. Insist on endorsements from the contractor’s insurance company naming the association and its manager or management company as additional insureds and promising to give them notice if the policy is cancelled. Many good agents will at least reference the endorsement that applies in the insurance certificate; agents for larger contractors will attach a copy.
2. Review the endorsement language and the contractor’s insurance policy carefully. Additional insured status won’t help you much if the policy doesn’t cover your claim or doesn’t cover it fully. Watch particularly for endorsement language that sets lower coverage limits for additional insureds or excludes some coverage for them.
3. Insist on endorsements for small contracts as well as for large ones. Even small-dollar contracts can create outsized liability risks.
4. The contract should specify the insurance requirements contractors must meet, including the types and amounts of insurance they must have. At a minimum, you want contractors to have a Commercial General Liability policy, sometimes augmented by an umbrella policy (to increase the coverage); a workers compensation policy; and separate insurance for vehicles operated as part of the contractor’s business. The amount of insurance you should require will vary, depending on the risks incurred. There’s no rule of thumb, but generally, you’d want to see a lot more insurance for contractors working on elevators or washing high rise windows than for those planting trees.
5. In addition to these general insurance requirements, the contract should include detailed requirements for the insurance endorsements. The contract language should specify that:
   • Contractors are required to name the association and the manager as additional insureds at specified coverage limits
   • Endorsements must be for “completed” as well as for “ongoing” operations. If the endorsement doesn’t specify completed operations, Masse points out, the association would not be covered for problems discovered after the contractor has completed the project. The contract should also specify that the coverage must remain in effect for a term matching the state’s statute of limitations on contractual claims, he suggests.
   • Additional insured status must be on a “primary, non-contributory” basis and include a waiver of subrogation endorsement ─ the insurer’s promise not to sue the association to recover a portion of a claim the insurer pays. This waiver is not included automatically in the standard additional insured endorsement, Masse notes.
   • Work will not begin on a project until the contractor has provided all the required insurance documentation: The certificate of insurance and the additional insured and cancellation notice endorsements. In an emergency situation – if a pipe breaks at 3 in the morning – you obviously can’t wait for endorsements (a good argument for having established relationships with reputable vendors you know you can trust). But absent an emergency, you can and should insist on having the endorsements in hand before the contractor even parks on your site. Insisting on the documents isn’t enough, however; someone – the manager, a board member, or the association’s attorney – has to follow up and make sure the contractor actually delivers them. Once work wins, your leverage will wane and you will begin incurring risks with no assurance that the contractor’s insurance will cover them.
6. Understand the limits of “blanket” or “automatic” endorsements. Many vendors use these forms, but they can create huge insurance gaps if not worded properly. Masse notes two concerns in particular:
   • Coverage applies only if the vendor contract specifically requires the contractor to name the association and the manager as additional insureds, so make sure your vendor contracts contain that language.
   • The blanket endorsement does not include the cancellation notice requirement; the association has to request that endorsement separately.
7. Make your vendor contracts as detailed as they can be, but also recognize that contract language alone won’t protect you. Provisions requiring contractors to indemnify the association and provide notice if the contractor’s insurance is cancelled are fairly standard (or should be) in association contracts. But the indemnification promise won’t be worth much if the contractor has no reachable assets with which to pay a claim. The contract’s cancellation notice requirement is equally flimsy. You will most likely learn a policy has been cancelled when the contractor’s insurer rejects your additional insured claim. You could sue the contractor for failing to notify you of the cancellation, as the contract requires, and you may well win that breach-of-contract claim. But your odds of recovering any damages from this troubled contractor are about the same as your odds of winning unanimous owner approval of anything.
8. You need protection for the contractors owners hire as well as for those working directly for the association. The association’s bylaws or its rules and regulations should specify that if a contractor hired by owners is doing work affecting the common areas, the association and its management company must be named along with the owner as additional insureds on the contractor’s insurance policy. Most contractors use the blanket endorsement, which requires a contract provision mandating additional insured status for the association and manager. Because the association does not have a contractual relationship with the owner’s contractor, Masse points out, boards must verify that the owner’s contract contains this additional insured requirement. Boards should also insist on reviewing owners’ construction plans and approving the contractors they hire.
9. Even if you are filing a claim under your contractor’s policy, you should file under the association’s master policy, as well, asking your carrier to contact the contractor’s insurer directly about defending the association. Include a copy of the vendor’s contract and a copy of the vendor’s certificate of insurance with your claim. You need to take this extra step for two reasons, Masse explains:
   • If the contractor’s insurance is inadequate or the claim isn’t covered, the association’s carrier may deny coverage if you don’t report the claim or report it late.
   • Additional insured coverage applies only to claims resulting from the contractor’s negligence; it won’t transfer liability for the association’s sole negligence to the contractor.
10. Ask for professional help. The association’s attorney should review the certificate of insurance and the endorsements related to it. The association’s insurance agent should assess the contractor’s insurance coverage. It is worth noting that the best agents will cost you no more than the worst ones; agents who don’t understand condominium insurance (there aren’t many who do) can end up costing the association a great deal.

Due diligence and attention to detail are essential. If the association isn’t named as an additional insured or doesn’t receive notice that the contractor’s policy was cancelled, fingers will start pointing, and many of those fingers will be pointing directly at the board members and managers who failed to obtain the protection the association needed. 

(Marcus Errico Emmer & Brooks specializes in condo law, representing clients in Massachusetts, Rhode Island and New Hampshire.)