- Dangers of Reliance on Construction Project Insurance Certificates
- August 4, 2011 | Authors: Ira Genberg; Jeffrey J. Nix; Frank E. Riggs
- Law Firm: Troutman Sanders LLP - Atlanta Office
Owners, contractors and subcontractors accept on faith, and place great reliance on, language in insurance certificates furnished to demonstrate required construction project insurance coverages. That reliance has been tested in recent years by the issuance of fraudulent certificates by insurance agents and insureds, representing insurance coverages that simply do not exist, as well as by innocent, but erroneous, statements in certificates of coverages (e.g., representations of additional insured coverage) which are not supported by the actual insurance policy. Recently, a new and equally dangerous insurance certificate risk has surfaced.
Notification of Insurance Cancellation
Certificates of insurance typically contain language imposing an obligation on the insurance company to notify - or at least to “endeavor to notify” - the certificate holder (e.g., the project owner) when the contractor or subcontractor insurance policy is cancelled or not renewed. Unfortunately for the owners and contractors relying on those insurance certificates, the certificates do not amend the insurance policy and typically do not bind the insurance carrier. Most insurance policies do not require that the insurance company provide notice of policy cancellations or non-renewal to certificate holders. Insurance companies, likewise, are not bound by construction contract promises by the contractor to notify the owner (or by the subcontractor to notify the general contractor) of insurance policy lapses. Many insurance companies, wary of potential claims regarding their failure to notify certificate holders of policy cancellations, are now refusing to provide such cancellation notices.
The Construction & Insurance Industries' Reactions
The potential danger to those relying on contractor-furnished insurance protection is obvious. In recent months, the construction insurance industry and the trade associations representing the various construction project stakeholders have struggled with potential solutions to this high-stakes problem. Some insurance companies now will offer policy endorsements providing an insurance company obligation to notify owners and contractors of policy cancellations. Other insurance carriers remain unwilling to do so. This latest insurance certificate problem is causing great concern, especially for project owners in need of certainty that insured risks remain insured for the duration of the project.