Why every trade sends a certificate: the COI's job in construction risk transfer

Risk runs downhill

Every construction project is a chain of contracts. The owner hires a general contractor. The general contractor hires trades: electrical, drywall, roofing, concrete, steel. Each contract says who carries which risk.

The usual rule is simple. Whoever controls the work carries the risk of that work. A roofer is responsible for the roof, its crew and the damage its work causes. The general contractor's job is to make sure that, when a roofer's loss happens, the roofer's insurance pays it, not the GC's policy, not the owner's and not the GC's balance sheet.

That is risk transfer. Contracts assign the risk. Indemnity clauses promise to cover it. Insurance requirements make sure there is money behind the promise.

What the requirements ask for

Most subcontracts carry an insurance section, often an exhibit, that tells the trade what coverage to carry for the job. The common pieces:

• Commercial general liability, with per occurrence and aggregate limits.
• Additional insured status for the GC and usually the owner, during the work and after it. See additional insured.
• Primary and noncontributory wording, so the trade's policy pays first. See primary and noncontributory.
• Waivers of subrogation, so the trade's carrier can't turn around and sue the GC. See waiver of subrogation.
• Workers' comp and employer's liability, auto liability and an umbrella or excess policy above the primary limits.

Our field guide to subcontract insurance requirements goes through each one.

Where the certificate comes in

The trade doesn't hand over its policies. Policies run to dozens of pages and change at every renewal. Instead, the trade's broker issues a certificate of insurance, almost always on the ACORD 25 form in the United States.

The certificate lists the insurers, policy numbers, effective and expiration dates, the limits, and checkboxes for additional insured and waiver of subrogation. It names the certificate holder, usually the GC, and has a description box for the project and any special wording.

For a GC managing dozens of trades on dozens of jobs, that one page is the only practical way to see everyone's coverage at a glance. That's why every trade sends one, and why no trade gets on site without one.

Why one from every trade

A GC asks every trade for a certificate because the trades it can't see are the ones that cost it most. If a trade is uninsured, or insured for less than the job needs, its losses look for another pocket. On a construction site, the nearest pocket is usually the GC's.

Some of the ways that happens:

• An injured worker of an uninsured trade looks to the GC and the GC's policy.
• Property damage caused by a trade's work becomes a claim on the GC's policy, which can raise the GC's premium at renewal.
• An owner who required coverage that a trade didn't carry may look to the GC to make up the difference.

Collecting a certificate from every trade, on every job, before work starts, is the first line of defense against all three.

What the certificate can't do

The certificate's own text sets the limit on what it proves. The ACORD 25 says it "is issued as a matter of information only and confers no rights upon the certificate holder," and that it "does not affirmatively or negatively amend, extend or alter the coverage afforded by the policies below." It also warns that if the holder is an additional insured, the policy must have additional insured provisions or be endorsed.

In plain terms: the certificate describes coverage. The policy and its endorsements create it. When the two disagree, the policy wins.

So a certificate is the start of verification, not the end of it. Our white paper A certificate is not coverage lays out the six ways certificates fail project requirements and what to check for each.

The short version for a new project manager

1. The subcontract says what insurance the trade must carry.
2. The certificate is the trade's broker saying the trade carries it.
3. The endorsements are the proof.
4. Collect all three before the trade starts, and again every time a policy renews.