Ask an Insurance Expert: Why Should You Require COIs?

This is Bob with Evident, and in this video we’re going to talk about why you should be requiring and checking the COIs (COI verification) that you received from your vendors.

Let’s take a hypothetical scenario: You’re a business and you carry another business’ products in your store. Part of that arrangement requires that they’re going to pay for any damage that their product causes your customers and they’re going to make sure that they can pay for that by carrying some limited products liability insurance. Now, you engage in good faith you never checked to see if they actually bought that insurance and a loss happens. You call them you email them, you send them legal notices, but they ghost you. What do you do now?

You take them to court you hope that they have an insurance policy but you know, know for sure. Most claims need to be reported to an insurer within a certain time period. So once that window closes, their insurance may not apply anyway. Let’s just say that that window closes and now you hope that the company itself has enough money to cover the loss that their product is causing. The lawsuit drags on. If they don’t have the money to pay, maybe they go bankrupt, maybe there is some leftover cash for you. Maybe not. Ultimately you and your insurer could be stuck with that loss.

Now there’s an example of why contractual requirements are not enough because if the company doesn’t have the money or the coverage, you’re going to have to take legal action to get that money back. And if it’s not clear, who was responsible for the loss, then they may not have to pay or if the other company denies that they’re responsible for that loss complicates things. So that means you and your insurer will have to sue them and their insurer which is a long, expensive unproductive process when compared to just making sure that their insurance is lower in the first place.

If your insurance requirements for your business partners are set correctly, and you’re verifying that they have the right coverage, you’ll know that there’s an insurance policy, you know which insurance with you’ll have provisions like an additional insured endorsement, which gives you the right to call their insurer directly file your claim if they don’t do it.

And at the end of the day, you’re gonna have peace of mind that that company can live up to its contractual requirements. Now it’s imperative for businesses to require and verify the insurance of their business partners. And yes, it can be difficult to manage thousands of certificates of insurance coming from the company to engage with, especially if you’re doing it manually, but that’s what companies like ours do. We make it easy.