Here’s a piece of useless trivia for you. You know that old saying that something “isn’t worth the paper it’s written on”? The saying apparently originated back in 1861, when Count Johann Bernhard von Rechberg und Rothenlöwen (remember him?), an Austrian statesman, was presented with a document recognizing Italy as a nation-state, and first uttered those now-familiar words.
You might want to remember Count Johann’s opinion the next time someone shows you a certificate of insurance. As you probably know, a certificate of insurance is a document, normally issued by an insurance broker, that supposedly verifies the existence and terms of an insurance policy. It’s common in the construction industry, where contractors and subcontractors are generally required to carry certain types of coverage, but really, the insurance card in your car is also a kind of certificate of insurance. The certificate of insurance is one of the most important documents that you can review in connection with your business contract, because if something goes wrong, you may need to tap that coverage.
The problem is, when it comes to enforcing the terms of the coverage reflected on the certificate of insurance, the certificate of insurance is essentially worthless. It’s just a written statement by an insurance broker, not an actual policy. While it might get the broker or policyholder into trouble for negligence or misrepresentation if it’s not valid, it creates no rights against the insurance company.
In one case out of Illinois, for example, the question was whether a certificate of insurance created rights for a property owner (United) under the general liability policy of a roofing contractor (Taylor). The certificate said that United was covered under Taylor’s policy. The problem was that, unbeknownst to United, the policy itself provided no such coverage. One of United’s employees fell off a ladder supplied by Taylor. This being America, the employee sued Taylor, which then sued United (the classic “claim-over” scenario.).
The court held that there was no coverage for United, writing: “The Certificate Issued to United Stationers served as adequate warning that it could not simply rely upon the certificate for the terms and conditions of coverage, including whether it was an additional insured under the CGL policy.” The Court also flatly stated: “The policy should govern the extent and terms of coverage.” You can read the case, United Stationers v. Zurich American, by clicking here.
The United case may have involved a mix-up in the paperwork, but some cases involve straight-up fraud. We recently handled a matter in which a contractor forged a certificate of insurance required by a contract, presumably because he couldn’t afford the actual coverage. This happens more often than you might think. Anyone, really, can easily fake an insurance certificate. Suppose a subcontractor with whom you’re worked before runs into money troubles. He lets his policy lapse, but he needs the work, so he uses the miracle of modern technology to “modify” an existing certificate. Or, someone decides to start his or her own shop. Insurance is expensive, so the budding entrepreneur takes a certificate from a previous employer, applies a few keystrokes, and presto! The new operation is suddenly “insured.” Or, a subcontractor has a very basic policy that doesn’t include contractually required provisions, like primary and noncontributory language, or a necessary “additional insured” endorsement. Once again, through the miracle of technology, he or she is able to make a few “amendments” to an old certificate and send it over.
And a potential fraudster doesn’t even need to “doctor” an existing document. There are websites that provide blank certificates of insurance that can be filled out by anyone.
(By the way, for a New Jersey case involving a fraudulent certificate, take a look at Mendoza v. DiPiazza, a 2016 decision from the Appellate Division, which you can access here. Mendoza involved a forged workers compensation certificate supplied by a roofing contractor.)
Any time you receive a certificate of insurance, you should contact the broker whose name appears on the certificate to verify that the coverage actually exists, and that the broker is a legitimate organization. In a perfect world, you should also ask to see the actual policy, although in practice, contractors and subcontractors mightily resist that. (Which leads to the question: why?)
There are also some obvious red flags, like the following:
- If the certificate of insurance appears worn, looks blurry, or has lines that are uneven, you may be dealing with a forgery. Any time a broker issues a legitimate certificate of insurance, it will appear new. Also, most brokers use the Acord-25 form of certificate. Check the bottom left-hand corner of the Certificate for the words “Acord-25.”
- Automated certificate systems use the same font throughout the document. If the font within the document does not match up, it’s a sign of forgery.
- If you look closely at the document, and it appears that whiteout was used (for example there are white dots within letters, or within sentences), red flag.
- Does the contact information for the insurance broker appear on the document? If not, then your business acquaintance may be trying to keep you from verifying that the coverage is valid. Red flag.
There are some simple ways to “trust but verify.” First, simply call the broker listed on the certificate and ask. (Confirm what he or she tells you in a follow-up email.) Second, for workers compensation coverage only, you may be able to verify the coverage through the New Jersey Compensation Rating & Inspection Bureau. You can reach the NJCRIB website by clicking here. Other states have similar verification services. Third, you can request that the certificate of insurance come directly from the insurance broker. Most brokers will be happy to accommodate you. And fourth, you can and should request that copies of all policy endorsements be attached to the certificate.
Otherwise…you may be holding a document that isn’t worth the paper it’s written on.