With regard to Certificates of Insurance ...

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Q. (cont.) 

1) Should a payment be withheld to vendor if an expired certificate or no certificate of insurance is on file? 2) What is the industry standard for the certificate of insurance process, specifically, which department manages and tracks the insurance?

A.

  1. Certificates of Insurance and the requirements for them are situational with regard to the types of services and goods rendered and the risks that may be associated with them.  Listed below are my general  thoughts on General Industry Standards.
  2. If a vendor has a Certificate of Insurance that expired then it is a reasonable practice to send a reminder to ask the vendor take action to remedy the circumstance.  Give reasonable time to have the task completed.  If response does not occur then send a second notice warning that payments could be withheld for noncompliance after a certain date.  Just cutting off payment in this case is not a good practice.
  3. If no Certificate is on File then same action as # 1 asking for Certificate of Insurance.
  4. Up front Management should be made a part of the company procedure to identify the need for Certificate of Insurance as part of the Purchase Order process.  Work in a business should not be allowed to begin prior to having a Certificate of Insurance and it should be part of the any contracts identifying the terms before funds are committed.  The AP function should not have to police this requirement as it is too late at that point.  Absence of written agreement could lead to other legal problems for non payment and could otherwise hurt credit ratings if one side decides to withhold payment if it was not agreed to in advance.  If a company has a risk management department it should fall to the Risk Management group.  Smaller companies mays designate a member of it's Management Staff to oversee and review requirements.
  5. Identify under what circumstances a certificate of insurance would be required.  If for services in the place of business then you would want to be confident that outside providers have adequate insurance to cover for liability for workman's comp and other liability for any damage for their employees and to your business when working at your business. (Contractors)  If a supplier is just supplying common off the shelf supply items then the need for Certificate diminishes.  If the supplier provides custom product and services then is useful to understand warranties provided in addition to Certificate of Insurance requirements.
  6. Define the risks you want the insurer to cover such as general liability, workman's comp, product liability, crime and cyber liability, property damage etc.  This is important as in each case there may be more than one insurance company who each cover a different aspect of coverage and while you may get a Certificate of Insurance does it cover your expectations or unique need.
  7. Define the what constitutes enough coverage such as $500k , $1.0 mil, $5.0 mil etc for the circumstance.  For example if someone causes $100 mil damage to your building but the Certificate of Insurance only covers $1.0 mil then having the Certificate of Insurance was not adequate for the circumstance.  However, $500k may be enough for a minor product liability claim.
  8. Determine who needs to be named on the Certificate as the Certificate Holder.  It could be your business or it could be named partners or it could be joint holder such as you rent a building but you may also be required by the landlord in the lease to also be named as a Certificate Holder for work you contract out to be performed in your place of business.
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