Appropriate Pain Is Essential For Insurance Certificate Management
Posted by Cary White on Thu, Feb 10, 2011 @ 02:07 PM
Unfortunately most insurance certificates you receive will have one error or another. Many certificates will have several errors. Some errors will be caused by failure of communication on your part. Some errors will be caused by the failure of one or more parties to share your insurance requirements with their respective insurance agent(s) and/or broker(s). Some errors are the result of routine or shortcuts on the part of the insurance agent or broker. Some errors will be a consequence of the insured not having the insurance your requirements specify. Presuming you have taken extraordinary steps to ensure the best communication of your insurance requirements and that they are reasonable, what should you do about the other error causes?
HISTORY OF PASSIVE TECHNIQUES TO ENFORCE INSURANCE CERTIFICATE COMPLIANCE
Over many years, it still amazes me that certificate holders have not varied their arsenal to combat insurance certificate issuance errors. Generally, the only steps taken fall into one of three categories:
- delay in contract
- delay in start
- delay in payment
Each of these is a passive inducement which may harm one or both of the contracting parties more than persuade greater attention to detail regarding insurance certificate issuance. If you are a contractor and want your concrete subcontractor to start work today so your schedule does not slip, is it in your best interest to delay the start of the subcontractor’s work for an insurance certificate. What would be the dollar impact of such a delay on the general contractor, on the subcontractor, and on the subcontractor’s insurance broker. Likewise, would it be a good idea for the contractor to allow the subcontractor to start work without a signed subcontract simply because an appropriate insurance certificate has not been received. Furthermore, what is the impact to the general contractor, subcontractor and others if payment is delayed until an appropriate insurance certificate has been received?
None of these three approaches address or discourage multiple failed insurance certificates more than a single failed insurance certificate. Keeping with the same example above, what is the cost to the general contractor and their team to review multiple copies of the same insurance certificate over and over again with few if any changes?
What is the cost to a developer if their loan is delayed because their insurance certificates do not meet the letter of the lender’s requirements. What is the cost to the tenant if the landlord will not allow them to move in until an appropriate certificate of insurance is received and approved?
CREDIBLE ACTIONABLE PAIN ESSENTIAL FOR SUCCESSFUL INSURANCE CERTIFICATE MANAGEMENT
Insurance certificate management success necessitates a more active approach including a direct approach as well as contingent plans when satisfactory insurance certificates are not possible. It has to be understood that there are two types of errors that need to be addressed: Inattentiveness and Coverage Shortfalls.
- Inattentiveness
Because there is a real cost to review and evaluate every insurance certificate that is received, whether it is correct or not, it is entirely appropriate to pass this cost on to the offending party. It is essential that your insurance requirements are clear, reasonable and actionable. Presuming that they are, then it may also be appropriate to insert a penalty for incorrect certificates in addition to the passive action alternatives common in the industry. For the best results, it may be best to allow everyone to have one non-compliant insurance certificate, but then charge a reasonable fee for every non-compliant insurance certificate received thereafter, such as $100 per certificate, or even $100 for the second certificate, $200 for the third certificate and so on increasing $100 for each non-compliant certificate received thereafter. Whatever penalties you deem appropriate, it is essential that they are expressly stated in the contract. If in the contract, the insured can then pass these penalties directly to their insurance agent or broker to hold them accountable for reissuing the same or otherwise non-compliant certificate each time thereafter if the problem is there.
- Coverage Shortfalls
No matter how clear, reasonable and actionable your insurance certificate requirements may be, there will still be some qualified parties with whom you want to do business but cannot meet all of your insurance requirements. It is essential for you to review each of your insurance requirements with your insurance team and insurance professionals and determine appropriate compensation for your additional risk should one or more of your requirements not be satisfied. These can be flat amounts such as $100 for no Workers’ Compensation Waiver of Subrogation or a percentage of the contract amount if the insured cannot add one or more of the parties required as an additional insured on the appropriate endorsement form(s). These penalties should be reasonable and objective guidelines to allow you room to negotiate with the non-compliant parties to expedite the work and maximize goodwill. Unlike the penalties for inattentiveness suggested above however none of these should be in the contract because you do not want to suggest that exceptions can and will be made routinely.