Call For Backup
If you think buying business insurance is a decision best made by the business's owner, you're right--to a point. But when that company is your supplier, you just might want to have input on what type of coverage it has.
Generally, you should be concerned with the company's property insurance, which covers your interest in tangible property, and liability coverage, which protects you in case of a lawsuit, says Craig S. Simon, a managing partner with Berger, Kahn, Shafton, Moss, Figler, Simon & Gladstone, a law firm in Irvine, California. You can use your position as a customer to insist that your suppliers provide you with peace of mind through certain types of insurance coverage.
"[As a business owner,] you consider the other party's insurance as additional protection," says Simon.
For example, if you buy components from many different sources to create your product, you may want to insist, as part of your purchase terms, that your suppliers carry liability coverage to protect you should a claim be made based on a product failure due to a specific component. Or if your period of exposure to potential liability or property damage is of limited duration--perhaps because your business is seasonal or event-driven--it may be more practical and customary for the supplier to provide the coverage than for you to do so.
Once you've determined that it's appropriate to require your supplier to have specific coverage, there are a number of ways to make sure what you ask for is in force. One is a certificate of insurance, which typically describes the type of coverage a company has. What is included on a certificate of insurance can vary by state and carrier. For the most part, all a certificate does is state the coverage that was in force when the certificate was issued, and does not give you any assurances that the coverage will continue in the future or that the policy will pay a claim to your benefit.
That said, it's common practice to accept a certificate of insurance as proof of coverage. Simon suggests thoroughly examining the document to ensure it truly is genuine. Check for current dates, a valid signature, the policy number, duration and limitations. Do you recognize the carrier? Is there any limiting language that might be constricting? Can you verify the information?
Safer than getting copies of certificates is asking your vendors to name you as an additional insured party on their policies. In this case, you not only get the benefits, but you'll also be notified if the policy is canceled. Simon says the cost to name someone as an additional insured party is nominal and sometimes even free.
Berger, Kahn, Shafton, Moss, Figler, Simon & Gladstone, (949) 474-1880, http://www.bergerkahn.com.