Additional Insured or Certificate Holder?

It’s not enough to be just a “Go-getter” in the REO industry. Nor is it sufficient to be a contractor with gifted hands. The company who earns the coveted spot with clients who have golden pipelines are those who are well-insured. And, what these clients ask one to carry by way of coverage is no light financial obligation.

It would seem that any rich twerp can easily get the better pick of the REO workload because insurance costs are barely an issue for them. I have mentally struggled to understand how some whom I have come to know in the industry obtained such a prestigious client base. In some situations, I served as a subcontractor for them and experienced their total lack of organizational abilities. I was left to wonder how they kept their clients. I could only conclude it was because they were fully insured. Nothing else made sense.

On the other hand, I can see the benefit of requiring contractors pay such steep fees to obtain the “proper” coverage. It tends to weed out the nitwits who intend to make a quick buck with mediocre experience.

What I am finding to be typical among the companies we’re going to work for is a minimum requirement of $1M General Liability coverage, with $2M aggregate. This means you are covered for a single occurrence up to $1M and can rack up a number of variously-sized claims totaling $2M. One can imagine the volatile feelings vested in a vacant, foreclosed property. The previous borrower who is now evicted has an interest. The bank who re-purchased the asset has an interest. The municipal government that presides over the city where the property rests has an interest. The broker or listing agent now in charge of marketing the property has an interest. The contractor entering these properties to manipulate the structure in any way does well to get covered from the outset. In a way, all eyes are on him/her as repairs are made.

I thought until recently that I would be able to save on costs associated with obtaining general liability coverage by requesting I be coded as a “Consultant”. This, after all, is what I spent the majority of my time doing. I personally don’t do any of the work. I just look pretty sitting at my laptop, assigning projects, managing projects and providing results documentation. I hire subcontractors who I require be fully-insured to perform services for me. For a while, this worked and I was able to save money. In my initial search for insurance coverage, I even spoke with agents who were baffled by the requirement placed on me as an Outsourcer in the REO industry. Their consensus: To pay for the type of coverage a contractor was getting was an unnecessary expense. Never would I blow anything up except maybe my printer. Never would I cause mayhem anywhere but in my filing system. The agents would nearly plead with me to argue with prospective clients to convince them of the lack of need for such coverage. Especially since I hired only insured contractors. Believe me — I tried to argue. It didn’t work. The industry isn’t that mature yet.

What I have been forced to settle with, if I want to keep a healthy clientele, is to purchase the same type of general liability coverage that the contractor in the field would have. But wait, there is more. I’ve also been told I must have Errors and Omissions to supplement my existing policy.

General liability insurance is primarily focused on obvious property damage or bodily injury. Errors and omissions insurance protects you if a client claims that your services caused them to suffer a financial loss. In situations where direct damage or harm is caused, your GL insurance covers you when a claim is made. In situations,for example, where legal action might be taken against Integrity REO Solutions and we need a defense attorney, E&O would cover that. There are times when you can in fact be an innocent party and still because you were indirectly involved you will be lumped into a suit.

The most recent discovery I have made regarding clients’ request for insurance documentation is the difference between them asking to be merely a Certificate Holder or an Additional Insured.

In terms of personal expense, you hope they ask to be a Certificate Holder. In this case, they just want to be listed as someone who holds your insurance documentation. It is usually free of charge to add this client to your policy. The only benefit to them in regards to being a Certificate Holder is they can rest assured that you have coverage when completing work for them at a given location. You are obviously of the more professional sort who cares to spent the expense on risk. There is no charge to add someone as a Certificate Holder because you are not adding them on to your policy in any way except as a named client.

The Additional Insured, however, is one who financially benefits from your insurance policy. In effect, when you add a client as an Additional Insured, you are covering them. I usually have to add an extra $100 to my premium when I attach another Additional Insured. This is because you are increasing the risk of claims being filed.

I personally think it isn’t fair for a large company like Field Assets, for example, who has in-house lawyers who provide legal counsel to require that the individual contractor add them as an Additional Insured. To me, it says they don’t really understand the insurance industry to begin with. Or, their lawyers have gone and muddied the waters as is typically the case when lawyers think like businessmen.

A little tip: be careful not to add a new client as an Additional Insured unless they ask for it. Listen or read closely. Some simply want to hold your certificate. Again, there is no cost for this on your premium. But, there is a charge for adding your client to your policy.

Understanding the need for coverage and what you are being covered for under your insurance policy is paramount. No matter how careful you are, you are still at risk if you are a contractor in the REO industry. Get covered.


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