Every single nonprofit needs a certificate of insurance (COI) at one time or another. It’s a simple matter for to create this document for an organization but what the document represents is often anything but simple.
It’s important to know the basics of certificates of insurance. It’s also important to know exactly what is being requested of you by third parties and how the provisions in your various contracts relate to certificates and to your nonprofit insurance.
Why Do You Need Certificates of Insurance?
A certificate of insurance is a document that you provide to a third party to show that your organization has insurance. These third parties range from grantors to municipalities to landlords to venues and beyond. You’ll usually have some sort of contract or agreement with the third party that requires you to have insurance.
Mostly, certificates of insurance show proof of general liability coverage. However, sometimes you are also required to show other coverages such as business auto, workers comp, directors & officers, or professional liability.
What Does “Additional Insured” Mean?
Most of the time when a third party requires you to provide a certificate of insurance they will ask to be named as an additional insured. This is not as ominous as it sounds—it just means that your insurance policy will provide coverage to the third party if they get sued for something that you do.
For example, say your nonprofit is having a fundraising event at the local Elks Club. The Elks Club will probably ask for a certificate of insurance, which names them as an additional insured. For your event you set up tables and displays for auction items. The evening of your event one of the displays falls on one of the attendees and severely injures them. That person will sue both your organization and the Elks Club. The Elks Club will then come to you and say that they want coverage for the lawsuit from your insurance policy because it was your actions and operations that caused the claim. If you have provided them a certificate of insurance naming them as an additional insured, then you will both be covered under your policy for the incident and resulting claim and lawsuit.
What About Endorsements?
Often your contracts with third parties will stipulate that you have certain endorsements in place. Most contracts have an indemnity clause that lays out who is responsible for what and when. When you enter into these contracts it’s important that you are aware of the risk that you are taking on. The trick is making sure that this additional risk is covered by your nonprofit insurance policy.
Sometimes a standard certificate of insurance won’t provide all of the documentation required. The trust is that the certificate document actually states that it is for informational purposes only and doesn’t provide actual coverage to anyone. So, the third parties that you enter into these contracts with will sometimes ask for the actual endorsement on your insurance policy that pertain to the items you agree to in the indemnity clause.
What Are the Common Endorsements Requested?
Additional Insured Endorsement: This is the endorsement issued by the insurance company that shows the third party is actually covered by your policy. Sometimes it’s just not enough to show the coverage on the certificate of insurance.
Waiver of Subrogation Endorsement: Most contracts say that the parties will not subrogate against each other in the event of an insurance claim or lawsuit. This endorsement is just the agreement from the insurance company that they will not subrogate.
30-Day Notice of Cancellation Endorsement: This is the agreement from the insurance company that they will notify the third party if your insurance policy cancels for any reason. The will send notice 30 days in advance of the actual cancellation.
How Do You Get Help With All of This?
Your insurance broker that specializes in nonprofit insurance of course! We recommend that you provide copies of your contracts to your insurance broker. He or she can review the indemnity clause and related clauses and advise you on what is needed. It’s probably a good idea to do this prior to signing any contracts so that you don’t put yourself in a risky position that can’t be covered by your nonprofit insurance policies.