A local church asks to hold a young adults’ dance at a golf club’s banquet facility. The club agrees to donate the cost of using the facility to the church, but requires a $2 million general liability Certificate of Insurance.
Although the church supplies the Certificate, it fails to provide proof of Sexual Molestation coverage. A teenage girl is molested in a vacant room at the club, which is an exclusion on the club’s General Liability policy. The insurance company denies the claim. The club is then named in a lawsuit and pays more than $350,000 in damages.
This case history illustrates two significant issues: using insurance and contracts to transfer risk. First, the club’s general liability policy left the club exposed by not having coverage for a serious risk.
Second, the club’s contract with the church was faulty. It did not make sure a critical risk was transferred to the church. This failure puts the club in a costly financial sand trap.
This case history is no exception. It’s an example of what occurs unnecessarily by not giving careful attention to protecting an organization’s assets.
What to do to Protect Business Assets
1. Understand and use Certificates of insurance
While Certificates of Insurance verify such information as policy coverages, expiration dates, descriptions and limits of coverages, and any endorsements, it’s important to point out that they do not transfer risk.
Most importantly, however, before accepting a Certificate of Insurance, your insurance broker should review it to make sure the insurance provisions give you proper protection for meeting the requirements of the contract. You should also be aware that a Certificate of Insurance has a significant limitation: it only reflects coverages that are in effect on the day it’s issued.