A Certificate Success Story

A large, privately-held retail firm based in the Midwest had a modest certificate of insurance tracking program that they knew could be improved as too many vendors were going unchecked and too many claims were being paid out from their own self-insured retention. Periculum Services Group Founder David Brown was brought in to help them improve the process and results. With more than 8000 product vendors and contractors, Periculum helped them successfully weave together the following elements into an indemnification program that literally saved the company millions of dollars.

In abbreviated form, the process worked like this:

  1. The legal department received notice of a customer injured or property damaged as a result of a defective product purchased in one of their stores.
  2. The certificate of insurance on file indicating the product vendor's liability coverage and additional insured status for the company was retrieved.
  3. A letter was sent to the vendor and to their liability insurance carrier, with a copy of the certificate attached. The letter indicated the nature of the claim, cited the vendor’s indemnity obligation, and pointed out the company’s additional insured status. In its closing, the letter placed the duty (and expense) to defend and respond to the claim on the vendor and their insurance carrier right from the start.

Anecdotally, it was clear to the firm’s risk management and legal personnel that the effort of tracking certificates and having an indemnification process in place was well worth the investment. But in order to prove the value of this effort to upper management, a survey of all indemnification claims over a one year period was conducted. Among other questions, the primary interest was in determining the final settlement value of the claims that were passed along via the indemnification process above.

Based solely on the responses received (which were naturally far from 100%), the company was able to ascertain that $1,756,739.06 was paid out by vendors on claims that were originally made against the company. Certainly, there were a few sizable claim settlements within this figure, but the overwhelming majority of the claims were settled for small amounts by the vendors’ insurers for minor damages that obviously add up to a significant sum.

This information allowed the company to forge ahead with plans to further automate the certificate tracking process and implement the latest risk management information system technologies. This is just one example of the success Periculum Services Group has provided for its clients.




A few common questions regarding certificate of insurance tracking…



Q: But our contracts and indemnity language are really all we need... right?

A: Of course well-written indemnity provisions will establish the legal obligation for your vendor to indemnify you, but... if you haven't confirmed that your vendor is adequately insured before a claim occurs, you could end up having to sue your vendor and perhaps take a large chunk of their assets in order to fulfill their obligation. You don't want to ruin an otherwise solid vendor relationship like this, do you? That's why they have insurance (or should have), and if you make it a point to confirm the insurance up front when the relationship with your vendor is good, the chances that an incident will become a wedge between you and your vendor are greatly reduced. Also, verifying your additional insured status on your vendor’s insurance policy will greatly simplify your indemnification.

Q: In what other way can a certificate of insurance be helpful?

A: Think about it strictly in terms of time. Without a certificate, you may spend several days trying to track down the vendor's insurance carrier. Or worse yet, your vendor may not be in business anymore! In the meantime, the clock is ticking and you typically have about 21 days to respond to the lawsuit to avoid default. While you dig through files and place phone calls to the vendor, you probably also assign the case to outside counsel to begin the process of responding to avoid default. That creates two problems: (1) It's expensive and (2) When you finally do find the vendor's insurance carrier, they may drag their feet knowing that you have already assigned the case to your outside counsel.

Q: But aren't certificates just pieces of paper filled with disclaimers and not worth much from a legal perspective?

A: Indeed, there are disclaimers and the certificate is simply a snapshot of coverage at the time of issue. However, the reality is that it does serve a useful purpose, or this pesky piece of paper would have died out years ago. It conveys information that can be most valuable and expedient at a time when million-dollar lawsuits are all too common. And doesn't it make good business sense that if you go to all the trouble to put detailed indemnity and insurance language in your contracts, you also make a consistent effort to validate compliance with that requirement? If your vendor doesn't have insurance, or is underinsured, or agrees to name you as an additional insured but doesn't do it, shouldn't you know that before something happens?