Certificates of Insurance

Insurance Certificates – More Than Just Satisfying A Requirement

Often the bigger companies with huge budgets and high quality in house attorneys lead the way in risk management.  But smaller, Mom and Pop sized businesses can learn something from these larger companies if they have the information to do so.  Today’s blog is designed to share some of what the big boys already know regarding certificates of insurance.

Most small contractor companies understand the need for certificates of insurance to prove that their subcontractors have insurance protection.  But what gets lost in the process often is a clear understanding of why you need that certificate and what it means to your company’s risk management process.

If I were to randomly sample a dozen small contractors who call our office requesting a certificate of insurance for one of our clients, and ask them why they need this certificate, I willing to bet that most would answer that they need it for their insurance company at audit.  And while this is the most pressing issue – you don’t want to have to pay for insurance on your subcontractors if you don’t have to – it leaves out the risk management side of this process.  No, the real reason you want a certificate of insurance is so that you feel comfortable knowing that if your subcontractor causes a large loss on your job site, your company will not have to pay those damages.  With all of the time and care and money that you have spent on your own insurance policies, why would you let an uninsured subcontractor put all of that in jeopardy?

Focusing on the need to know that your subcontractor is adequately insured before he or she sets foot on your job site, we now want to take a closer look at the certificate of insurance to make sure that it is as reliable as you might be assuming it to be.  With that in mind, here are a few things to keep in mind regarding certificates of insurance.

Get them from the insurance agent, not the subcontractor.  Several years ago it was discovered that people were purchasing blank and fraudulently completed certificates of insurance from unscrupulous dealers on ebay.  Let’s face it, if you want to find a way to fake a certificate of insurance, it is not going to take a rocket scientist to pull it off.  So, the best plan is to ask your subcontractor for the name and number of his insurance agent and contact them directly to request the certificate.

Review the certificate for dates and limits.  When you receive a requested certificate of insurance, don’t just file it away without looking at it.  Take a minute to check the names of the insurance companies that are providing the coverage.  Do they look legitimate?  Are they known names in your business?  Next check the dates.  If a policy is within days of expiring, or if it is going to expire before your subcontractor leaves your job site, then you will need to get another certificate proving that coverage was renewed.  Last of all, check the limits of coverage listed for each policy.  Make sure that your sub has high enough limits to keep your insurance from having to respond to a large loss – you don’t want to have to muddy up the claim with two insurance companies involved in the same loss and you really don’t want to have to trigger your insurance protection for a loss caused by one of your subs.

The Certificate of Insurance is just a snapshot.  Keep in mind that any insurance certificate is just a snapshot of the coverage in place on the day that it was issued.  If your sub doesn’t pay his next bill then he could be working on your job site with cancelled coverage and that could cost you big money if that sub causes a large loss.  While many certificate forms state that the insurance company will endeavor to notify you if any of the policies are cancelled, the truth is that most insurance companies do not even want to see copies of certificates issued by their agents and they have no intention of letting you know if a policy is cancelled.  In fact, they couldn’t do it even if they wanted to as they have no copy or record of the certificate in their files.

Consider the Additional Insured option.  This is a trend with larger contractors and one that the smaller contractor should consider.  Instead of asking for a certificate of insurance, consider asking that your company be added as an additional insured on the subcontractor’s policies.  There may be a charge for this endorsement but generally the charge will be pretty minimal.  Once you are added as an additional insured, you will now receive an endorsement to the policy from the insurance company, so you know that they know about you and issued the endorsement.  This also solves the snapshot problem as you are now an integral part of their policy and you will receive cancellation notices or notices of nonrenewal should any of those be triggered.

Often, when insurance policies are a contractual or legal requirement, people only focus on satisfying that requirement, rather than keeping their focus on the purpose of the insurance protection itself.  Don’t let your certificate of insurance procedures become a simple rule following process, make sure that your company is getting the protection that it needs from the risks of uninsured subcontractors


Louisiana Insurance Exec Arrested for Theft of Nearly $1M

An insurance business owner and former official for a Louisiana port has been arrested for stealing nearly $1 million from his clients, authorities said.

Kristian Gaudet, 45, of Cut Off, was charged with two counts of felony theft, The Courier reported.

Deputies said they began investigating Gaudet, a former vice president of the Greater Lafourche Port Commission and owner of Kris Gaudet Insurance and Financial Services, after getting a complaint from a couple about investments they had made with him.

The couple found discrepancies in their records for a $350,000 investment made to “Winston Financial,” a company Gaudet registered in Louisiana in 2012. Authorities said the couple’s check had been deposited into the Winston Financial account and Gaudet then transferred most of the money into another account, deputies said.

The money was used “for purposes for which it was not intended,” authorities said.

In May, another couple had also invested money with Gaudet, who transferred a large amount of that money into another account and used it to buy a home in Larose, deputies said.

Since 2012, Gaudet has frequently used money he received from investors for personal gain including using money clients paid for insurance to buy real estate, investigators said.

The Louisiana Department of Insurance (LDI) has issued a cease and desist order to Gaudet and his license has been suspended. The Financial Industry Regulatory Authority (FINRA) has been notified of the investigation and Gaudet has been barred from having any association with any financial agency associated with FINRA.

Gaudet is being held at the Lafourche Parish jail on $1 million bond. It was unknown if he has an attorney.

Gaudet served as vice president of the Port Commission until he was defeated Nov. 6 by fellow Republican Jimmy “T-Jim” LaFont. Gaudet had served one six-year term on the commission.

The Lafourche Parish Sheriff’s Office is asking anyone who has made an investment with Gaudet and his company since 2012 to talk to investigators. The sheriff’s office is conducting this investigation in coordination with the FBI, Louisiana Attorney General Jeff Landry’s Office, and LDI’s Fraud Division.

Anyone who bought insurance through Gaudet and his company should check their insurers to make sure they have coverage, deputies said.