Part 1: FAQs About Certificates of Insurance

What is a certificate of insurance?

It's evidence of insurance -- proof of a contractor's financial ability to pay for a loss caused by the contractor's negligence. No coverage benefits are afforded to the certificate holder.

When are certificates needed?

They're needed when another party performs services on our behalf, has our property in their care, custody, and control, and/or controls or directs our employees. The dollar amount of a contract may not reflect the actual risk. For example, some small-dollar contracts or purchase orders (such as pyrotechnic displays or transportation contracts) are high-risk exposures.

What if I am not sure if a certificate is needed?

Ask: What can possibly go wrong? How likely is it to go wrong? If it does go wrong, how much will it cost? Who should pay for the loss if the contractor does something wrong?

What insurance coverages should I request?

Most contracts and purchase orders require commercial general liability, automobile liability, and workers' compensation insurance. Depending on the exposures, other types of coverages may also be required. Refer to the "Insurance Requirements Checklist" on our Web site (www.dist.maricopa.edu/legal/incklst.html).

What amounts of limits should be requested from the contractor?

See the "Minimum Insurance Limit Guidelines" on the Legal Department's Web site (www.dist.maricopa.edu/legal/matrix.pdf).

Are lower limits permitted for small contractors or artisans who are performing small jobs for us?

No. These are the people we want the limits from, since they may not have the assets to indemnify us in case of a serious, underinsured loss.

If a contractor's insurance does not meet our insurance requirements, should we alter the requirements to fit the contractor's insurance?

No. This language has been carefully worded to afford us as much protection as legally possible. Altering the language would weaken our position. If the contractor is unable to comply with the limits requested, contact the Risk Manager for guidance.

Should I always ask for the MCCCD to be named as an "additional insured"?

Additional insured means that the MCCCD will be named as an "insured" on the contractor's insurance policy. If the contractor is negligent and a claim is filed against us, the contractor's insurance company defends the claim for us. The insured may or may not pay an additional premium. We can only be named as additional insured on general and automobile liability policies. MCCCD should always be named as the certificate holder and the additional insured, not the college.

What if we don't have the certificate when the contractor starts the work?

There are no good choices when this happens (and it's why the insurance specifications should be given to the contractor early). Either we must delay the work, or we must "self insure" the contractor until we receive and accept the certificate. (Don't forget that we self-insure the first $100,000 of any liability loss. So if the contractor does not have insurance, and a claim is filed against us because of the contractor's negligence, MCCCD will have to pay the first $100,000 of that claim.)

Published in the Winter 2001 Edition of In Brief