Beyond the COI: A Practical Approach to Contractual Risk Transfer 

Collecting Certificates of Insurance (COIs) from vendors, contractors and service providers is an important risk management practice. But a COI is only one piece of the puzzle. 

A COI provides evidence that insurance was in place at a particular point in time. It does not, by itself, transfer liability, change the terms of an insurance policy or guarantee that another party’s insurance will respond on your behalf if a claim occurs. 

That’s where contractual risk transfer (CRT) comes in. 

Understanding the difference – and making sure your contracts, insurance requirements and supporting documentation work together – can help protect your organization when something goes wrong. 

What is contractual risk transfer? 

Contractual risk transfer is the process of using written agreements to establish how certain risks and responsibilities will be allocated between parties. 

Consider a business that hires an outside contractor to perform work on its property. If that contractor causes bodily injury or property damage while performing the work, the contract can help establish which party is responsible and what insurance requirements apply. 

The basic principle is that responsibility should generally follow control. When another party is performing work or providing a service, your agreement should address how risks associated with that work will be handled. 

Exactly how that responsibility should be allocated depends on the relationship, the work being performed and applicable law — which is why contractual risk transfer requires coordination between your insurance professionals and qualified legal counsel.

A COI verifies insurance. A contract defines responsibilities. 

It’s easy to view a COI as confirmation that you’ve “checked the insurance box.” But the distinction between insurance verification and risk transfer matters. 

A COI can help you confirm that a vendor or contractor carries certain insurance. The written contract, however, establishes what you’ve required that party to do. 

Depending on the relationship and the risks involved, a contractual risk transfer program may address: 

• The responsibilities of each party 
• Indemnification or hold harmless provisions 
• Types of insurance and appropriate limits 
• Additional insured requirements 
• Primary and noncontributory wording 
• Waivers of subrogation 
• Documentation or endorsements required to verify that the agreed-upon insurance protections are actually in place 

The appropriate requirements won’t be the same for every vendor. A contractor performing hazardous work on your property presents a different exposure than a consultant working remotely, for example. 

The goal isn’t to apply the longest possible list of insurance requirements to every relationship. It’s to make sure the requirements make sense for the work being performed and the risk involved. 

Why the contract and insurance policy need to work together

One of the more easily overlooked aspects of contractual risk transfer is the relationship between the written agreement and the actual insurance policy. 

For example, some insurance policies contain blanket endorsements that can provide additional insured status, waivers of subrogation or primary and noncontributory coverage when required by a written contract. 

But that protection may depend on specific conditions being met, including having a written agreement in place before the work begins. 

That’s why simply seeing certain language referenced on a COI isn’t always enough. The contract establishes what has been required, while the policy and its endorsements determine whether and how coverage actually applies.

In other words: the COI, contract and insurance policy should tell the same story. 

Risk transfer isn’t just for construction projects 

Contractual risk transfer often comes up in construction because contractors and subcontractors create obvious third-party exposures. But the concept applies much more broadly. 

Businesses routinely rely on outside organizations for services such as: 

• Janitorial and facility services 
• Landscaping Maintenance and repair 
• Security Equipment installation or servicing 
• Technology and consulting services 
• Delivery and transportation 
• Property management Leasing arrangements 

Any time another organization is performing work for you – or you’re performing work for someone else – it’s worth understanding how the agreement allocates responsibility if something goes wrong. 

For a deeper look at how these concepts apply in a contractor-heavy environment, our Contractual Risk Transfer (CRT) in Construction: How Contracts and Insurance Keep Claims in the Right Lane article walks through several of these considerations in the construction context. 

Don’t overlook the contracts you’re signing, either 

Risk transfer works in both directions. 

It’s important to establish appropriate requirements when you’re hiring vendors and contractors. But it’s equally important to understand the obligations your organization is accepting when you sign someone else’s agreement. 

A customer, landlord, general contractor or other business partner may require your organization to assume certain liabilities or provide specific insurance protections. Those requirements don’t necessarily mean your existing insurance program will respond exactly as the contract requires. 

Before entering into a significant agreement, consider having both your legal counsel and insurance team review the relevant provisions. Legal counsel can advise on the contractual language and enforceability, while your insurance team can help identify insurance requirements that may create coverage concerns or require changes to your program. 

Build a consistent process 

Contractual risk transfer works best when it isn’t handled differently every time a new vendor or agreement comes across someone’s desk. 

A practical process might include:

• Using written agreements appropriate to the relationship and scope of work 
• Establishing insurance requirements based on the exposure 
• Collecting and reviewing COIs before work begins 
• Obtaining supporting endorsements when appropriate rather than relying solely on the COI 
• Tracking expiration dates and updated insurance documentation 
• Reviewing significant contracts with qualified legal counsel 
• Involving your insurance team when an agreement contains unfamiliar or significant insurance requirements 
• Periodically reviewing your process as your operations and vendor relationships change 

The specifics will vary by organization. What’s important is having a repeatable process and clearly defined responsibility for managing it. 

Make sure the pieces work together 

A Certificate of Insurance is a useful risk management tool. It just shouldn’t be the only one. 

Effective contractual risk transfer requires the written agreement, insurance requirements and actual insurance coverage to work together. When those pieces aren’t aligned, an organization may discover after a loss that the protection it expected isn’t there. 

The goal isn’t necessarily to transfer every possible risk to someone else. It’s to allocate risk thoughtfully, understand the obligations your organization is accepting, and make sure the insurance arrangements support those intentions. 

At Morris & Garritano, we can help you evaluate insurance requirements, review COIs and endorsements from an insurance perspective, and identify areas where your contractual requirements and insurance program may not align. Your qualified legal counsel should review and advise on contract language, indemnification provisions and enforceability. 

Working together, those perspectives can help your organization make more informed decisions before a claim puts the agreement to the test. 

This article is provided for general educational purposes only and does not constitute legal advice. Contract language, indemnification provisions and enforceability should be reviewed by qualified legal counsel. Insurance coverage is subject to the terms, conditions, limitations and exclusions of the applicable policies. 

Sources:

1. Travelers, What Is Contractual Risk Transfer? 
2. Travelers, What Is a Certificate of Insurance? 
3. Nationwide, Contractual Risk Transfer Basics for Business Owners. 
4. Nationwide, Contractual Risk Transfer and Understanding Risk Transfer. 
5. IRMI, Drafting Bulletproof Contractual Risk Transfers. 
6. TSIB / IRMI, Understanding Contractual Risk Transfer. 
7. Docutrax, Insurance Endorsements: What They Are and Which Ones Carry Risk Transfer.