Your company receives a demand letter and you realize that the claim stems from a vendor’s product or service. What do you do next? The first step for most companies will be to review the operative contract for any indemnification provisions. Next on the list will be to review any certificates of insurance issued by the vendor. All too often, however, companies at this phase learn that they were never actually added as additional insureds to their vendors’ policies or that their vendor’s coverage is inadequate.

Certificates of insurance are summaries of insurance coverage. They do not confer any rights on the certificate holders; instead they merely set forth the types and limits of coverage held by the policyholder. As noted in our blog post on these issues, a best practice is to request a copy of your vendor’s complete insurance policy and all endorsements. Vendors often balk at requests for copies of their insurance policies in the wake of a claim, making it all the more important that your vendor contracts require vendors to produce complete insurance policies. See this post for additional tips on drafting vendor contracts.

It is essential that you take the time to review vendors’ certificates of insurance when you receive them. Be sure to confirm that the certificate of insurance reflects the types and limits of insurance to satisfy the vendor’s insurance obligations under its contract with your company. Also be careful to confirm that the policy period is long enough to provide coverage during your company’s relationship with the vendor, and any applicable statute of limitations for claims that could arise from the vendor’s work. If not, create calendar reminders 45 days before the vendor’s policy period expires to obtain new certificates of insurance (and copies of renewed policies) to ensure no gaps in coverage.

You should also review the listed coverages to confirm that, where possible, it is provided on an “occurrence” rather than a “claims-made” basis. Occurrence-based policies generally provide coverage for an incident that occurs during the policy period, regardless of when the claim was actually brought. Conversely, claims-made coverage only applies when a claim is made during the policy period.

Finally, and perhaps most importantly, confirm that your company actually has rights to the vendor’s insurance coverage. Certificates of insurance typically include vague statements that say things like “Certificate holder is an additional insured where required by written contract” or “Policy includes broad-form vendor additional insured coverage.” Coverages granted by additional-insured and vendor endorsements vary greatly. At the very least, request copies of any additional-insured endorsements as well as any significant exclusions. If the vendor objects, request that, at minimum, they list all relevant form numbers on the certificate of insurance. But keep in mind that only the actual policy documents (which should be reviewed carefully if they are provided to confirm adequate coverage) will ultimately determine whether and how much coverage you have under any vendor’s policy.

While there is no guarantee of coverage from a certificate of insurance, having processes in place to review certificates of insurance as they are delivered will help protect your company in the event of a claim.