Insurance Certificate Decision Steps
Entities wishing to enter into contracts with MCCCD should furnish proof that their insurance coverage will protect MCCCD should a problem arise with the goods or services they furnish. This sound advice applies both to contracts that are written agreements and to purchase orders. Proof that the entity’s insurance covers MCCCD consists of a certificate of insurance showing both that the entity has specific insurance coverage and that MCCCD has been added to the certificate as a named additional insured.
The reasons for following such a practice are sound. Practicing good risk management includes transferring the financial risk of accidental loss to the non-MCCCD entity that controls the activities through which loss may occur. MCCCD’s insurance standards ensure that MCCCD deals with responsible entities that are able to fund any loss they cause. The essential purpose of our standards is to protect students and MCCCD by providing a financial resource to cover claims for injuries or property loss or damage that non-MCCCD entities cause.
When MCCCD is a named additional insured on a certificate of insurance, the degree of protection is far greater. Why is this? Standing alone, a certificate of insurance only states what the policy’s dollar limits were on the date the certificate was issued. When MCCCD is a named additional insured, we gain direct access to the contractor’s insurance company. The insurance company will usually have a duty to defend and indemnify MCCCD because we are a named additional insured.
On some occasions, a contracting entity may decline to provide a certificate of insurance with MCCCD as a named additional insured. The college, skill center or District Office should have some standard process in place for evaluating under those circumstances whether it is appropriate to proceed with the contract. It is important to remember that the dollar value of the goods or services does not have a direct relationship to the amount of potential risk. A $250 contract for tree trimming carries more potential for injury or damage than a $25,000 purchase order for library books. It is the type of activity or product, not the expense, which determines the potential risk.
The steps below will assist MCCCD entities in obtaining certificates of insurance with MCCCD as a named additional insured and in making reasoned decisions about whether to waive these requirements. The steps will also help document the decision-making process.
INSURANCE CERTIFICATE DECISION STEPS
- Have you advised the vendor or outside entity during initial discussions that MCCCD will expect it to provide an insurance certificate that meets MCCCD requirements and that adds MCCCD as an additional insured? For information about those requirements, see the following website under the “Insurance – Language and Limit Requirements ” heading:
http://www.dist.maricopa.edu/legal/rmi/
____ Yes. Go to step 2.
____ No. Ask the vendor or outside entity to comply with the requirements.
- Has the vendor or outside entity indicated that it cannot or will not provide the certificate that adds MCCCD as an additional insured?
____ Yes. Go to step 3.
____ No. Obtain the certificate, review it to determine whether it meets MCCCDs requirements, and if it does, forward a copy of the certificate to MCCCD’s Legal Services Department for entry into the insurance certificate database. See the website referenced in step 1 and click on “Insurance – External Certificates of Insurance – Searchable Database.” Congratulations. You have completed your insurance review.
- Has the vendor or outside entity provided MCCCD with an insurance certificate showing that it has the required insurance, but without naming MCCCD as an additional insured?
____ Yes. Go to step 4.
____ No. If the vendor or outside entity does not provide a certificate of insurance, in most cases you are strongly advised not to use them. You should locate another vendor. Only in situations with the remotest risk of injury to people, property, or reputation and a significant need for the service or good should you even consider doing business with an entity that will not or cannot prove that adequate insurance coverage remains in effect. An illustration of a potentially viable exception is a speaker coming to campus to provide a lecture to one class. But a speaker bringing a kiln or demonstrating roof repair, for example, presents a riskier situation.
Factors relevant to waiving the requirement for a certificate of insurance include:
- The nature of the service;
- Whether the person is bringing equipment, supplies, or other items on campus and, if so, what;
- Whether the person is in that business only occasionally (such as a person who lectures only four or five times per year);
- The length of time the person will provide the service (such as one day);
- The need for the service, particularly to the learning experience; and
- The vendor’s reason for declining to provide a certificate of insurance.
There is no “bright line” guidance on when to waive the requirement that the outside entity submit a certificate of insurance.
- Have you performed a risk analysis to determine whether it is wise to waive the requirement that the vendor or outside entity add MCCCD as an additional insured?
Risk analysis for waiving named additional insured status for MCCCD:
- What can possibly go wrong? How might someone be injured, property damaged, or college operations interrupted? Remember Murphy’s Law.
- How likely is it to go wrong, given the risks inherent in the type of service rather than your confidence in this particular vendor or outside entity?
- How expensive could it be if something did go wrong?
- Is the likelihood of something costly happening so low that MCCCD may take the risk of waiving the additional insured requirements without also risking being the “bank” for a potentially expensive claim?
(For more practical guidance on answering these questions, see the examples in the Attachment.)
____ Yes, I have performed a risk analysis. Proceed to step 5.
____ No. You are strongly advised not to contract with the vendor or outside entity unless you perform the analysis. You really should find someone else to provide the services.
- Have you checked the results of your risk analysis against the examples provided in the Attachment to this matrix?
____ Yes. Go to step 6.
____ No. Check your results.
- If the activity with the vendor or outside entity involves issuance of a requisition or limited purchase order to the vendor or entity, have you provided an explanation of your risk analysis via e-mail to the Fiscal Officer?
___ Yes. Go to step 8.
___ No. Provide the analysis to the Fiscal Officer so that he or she can review it and keep a record.
- If the activity with the vendor or outside entity involves a contract or agreement that the Legal Services Department must review and sign, and if the Department has requested that you obtain a certificate of insurance that names MCCCD as an additional insured, have you sent your risk analysis to the Department?
____ Yes. The Legal Services Department will either sign the contract or discuss your risk analysis with you to ensure a mutual understanding of your decision.
____ No. Either forward your risk analysis or obtain the appropriate insurance certificate from the vendor.
- If the vendor or outside entity has declined to provide an insurance certificate that adds MCCCD as an additional insured, and person responsible on your campus or office for implementing MCCCD’s insurance requirements has concluded that he or she cannot waive the requirement, that person should send an e-mail to the college President or, for the District Office, the appropriate Vice Chancellor, and ask him or her to make a final decision. If the President or Vice Chancellor decides to waive the requirement, the Fiscal Officer, if the contract involves issuance of a requisition, or the person at the campus or office initiating the contract should retain a copy of the response with the contract to document the authorized waiver.
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