Why Certificates of Insurance are so Important to Community Associations

By: Steven R. Braten, Shareholder

Rosenbaum PLLC

Does your community association require its vendors to provide evidence of insurance prior to commencing work within the community?  What about vendors of owners?  Before associations enter into contracts with vendors, we recommend they verify the vendor has in effect, at a minimum, general liability insurance, property damage insurance, automobile insurance, and workers’ compensation insurance.  Additional lines of coverage may be appropriate, depending on the scope of work to be performed.  For example, if the vendor is a licensed professional, then professional liability insurance should be required.  If the vendor is performing construction work on the association’s property, then it is important to require completed operations liability insurance, which generally provides coverage for an insured contractor against third-party claims for bodily injury and property damage coverage caused by the contractor’s “completed operation” or work (i.e., once the contracted work is completed).  If the nature of the construction work is significant, then the contractor should also be required to produce evidence of “explosion, collapse and underground hazard coverage (also known as “XCU” coverage).

The types of lines of coverage to require and the minimum limits of insurance are typically determined based on the scope of work and therefore the potential hazards or risks associated with that work.  Also, depending on the scope of the project, it may be appropriate to require the vendor to endorse its policies of insurance to add your association as an “additional named insured” to the policies.  This will provide an association with greater rights and accessibility to coverage in the event of a covered loss.  Your association will also want to be notified if there is any change to the coverage in effect at the time the contract was executed, as well as advance notice of a cancellation of a policy of insurance for any reason and proof of continuation of coverage.

The most effective way of implementing and maintaining a meaningful insurance verification process is to require vendors to provide current certificates of insurance (along with a copy of the vendor’s licenses) to the Association before permitting any vendor to commence work on the association’s property.  A certificate of insurance is a document typically issued by an insurance broker that confirms an insured party has purchased insurance coverage and the types and limits of insurance coverage purchased.  The “producer” of the certificate will be listed in the top left box of the certificate.  Beneath the producer will be the primary named insured(s) which should be the vendor.  The names of the insurance carriers providing each line of coverage identified in the certificate will also be listed.  A certificate of insurance identifies each listed policy number and effective date and current termination date.  This permits the association as the certificate holder to confirm the insurance in effect at the time of contract and more readily check the status of the insurance during the duration of the work to be performed.

Below the list of coverages is a box for the “Description of Operations/Locations/Vehicles”, as well as for additional remarks.  This section of the certificate is typically used for identifying the nature of the insured’s operations, locations and special coverage provisions that may apply to the project, including special endorsements that have been made to one or more of the policies of insurance required by the terms of the contract with the vendor.  The bottom two boxes of the certificate contain a space for the “Certificate Holder” or “Additional Named Insured(s) and the “Cancellation” section, which provides that notice of a cancellation of any policy listed in the certificate will be provided to the certificate holder and additional named insured “in accordance with the terms of the policy”.  Since the association is often not privy to the actual terms of the policy, the better practice is to require all vendors and contractors who will be performing services on the association’s property to have an obligation to notify the association of any termination or lapse of coverage within a fixed number of days so the association has the opportunity to deny the vendor access to the community if the vendor’s insurance has been cancelled.

In addition to requiring certificates of insurance from association vendors, community associations may also wish to require owners to provide the association with certificates of insurance.  This may be particularly appropriate in the condominium setting.  For example, in the hi-rise context, if a unit owner is renovating his unit, the unit owner’s contractor will be driving their trucks in the common area parking lot, entering the lobby with equipment, and using the elevator.  Consequently, a unit owner’s contractor may cause damage to the building, or depending on the nature of the work, to other units in the building.  Under these circumstances, in the event of a loss, it is critical that the vendor has general liability and property damage insurance. This is particularly so because the Florida Condominium Act no longer requires condominium unit owners to maintain insurance on their units.  Therefore, in the event of a loss, the injured party will be looking for someone to recover from, and the only insured party may end up being the association.

To be sure, navigating the more intricate insurance issues associations encounter, both with vendors and owners, is challenging.  Therefore, we recommend your community association consult its insurance, management and legal professionals to properly address these important issues.

Rosenbaum PLLC represents community associations throughout Florida and focuses on condominium and homeowner association law, real estate law, civil litigation, land use and zoning, and commercial transactions. The information provided herein is for informational purposes only and should not be construed as legal advice. The publication of this article does not create an attorney-client relationship between the reader and Rosenbaum PLLC, or any of our attorneys.  Readers should not act or refrain from acting based upon the information contained in this article without first contacting an attorney, if you have questions about any of the issues raised herein.  The hiring of an attorney is a decision that should not be based solely on advertisements or this article.