Suggested Course of Action for Sub-Contractors, General Contractors and Owners
Nick Delguyd, CPA, GACR
Jeff Phillips, CIC, CRM
It is standard construction industry practice to verify adequate insurance coverage for contractors through the use of a certificate of liability insurance, a standard form produced by ACORD (Association for Cooperative Operations Research and Development,) an insurance organization.
In September 2009, ACORD issued a new version of the certificate of liability insurance, ACORD 25 (9/2009.) ACORD copyright standards require that the newest version of their form be used by September 2010. ACORD 25 forms with an earlier edition date are no longer in compliance with ACORD’s rule. While there are several differences in the 9/2009 version from earlier versions, one of the biggest changes with the newest certificate form is that it does not contain a section regarding notice of cancellation to the certificate holder, often a requirement in construction contracts.
Why the change was made
The cancellation section was removed from the certificate of insurance because a standard unendorsed insurance policy does not provide for notice of cancellation to be sent to anyone but the first named insured on the policy. Additional Insured endorsement forms which are used to cover the project owner for losses caused by a subcontractor also do not allow for a notice of cancellation to be provided to the Additional Insured. It should be noted that the Named Insured is able to cancel their policy at any time with no advance notice. In addition, cancellation for nonpayment often only requires 10 days notice to the Named Insured by statute while many construction contracts require 30 or even 60 days advance notice. Since a provision for advance notice of cancellation to an Additional Insured or party other than the first Named Insured does not exist in the policy forms itself, it cannot be included on a certificate of insurance unless the insurance company in question endorses the specific policy in question, stipulating that notice will be provided.
Every insurance company varies on what amendments they are willing to make, but construction contracts should begin to ask for these endorsements rather than a notice of cancellation on a certificate of insurance now that the 9/2009 version of the ACORD 25 is the only form that should be used. It should also be noted that even these endorsements may not provide for advance notice of cancellation, only notice that a policy has actually lapsed. If these endorsements are not available, project owners should consider asking the subcontractor to notify them if their policy lapses or request updated certificates of insurance at regular intervals to ensure that coverage remains in force.
Suggested course of action for a sub-contractor
If you are a sub-contractor, we recommend that an attorney review all contracts before signature and that a licensed, knowledgeable insurance agent reviews the insurance requirements before a contract is signed. An insurance agent can advise what endorsements may be needed to comply with the insurance requirements or if the insurance policy is not able to respond to a specific requirement.
Suggested course of action for an owner or general contractor
If you are a project owner or a general contractor, we recommend that you review your insurance requirements with your attorney and insurance agent to ensure that your contract wording reflects what can be covered through a subcontractor’s insurance policy using current forms. It is also a good idea to require updated certificates of insurance throughout the term of the project term in order to verify that coverage still meets the requirements and remains in force since advance notice of cancellation is often not possible.