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Are Your Lease and Rental Certificates Worth the Paper They’re Printed On?

Are your certificates of insurance put in a paper file or hidden in your computer, never to be seen again until the time arises when you need them, just to find out there is limited or no protection for your company? This happens more than we would like to think. An improper certificate could cost your company thousands of dollars, or, worse, a disgruntled valued customer.

You can avoid most certificate problems by taking a few precautions to protect both the rental company and the rental customer. First and foremost, the rental department should be sure that the customer lists the company as an additional named insured on the certificate. By doing this, both the customer and the dealer are protected in the event of a loss.

Lease and rental departments should also verify that the proper limits are included on the certificate. This starts with, but is not limited to, $1,000,000 of general liability. Many well-intended dealers miss looking at their customers’ physical damage limit (aka leased/rented equipment limit). The leased/rented equipment limit needs to be at or greater than the value of the machine(s) in question, and provide coverage that reimburses replacement cost value of the equipment on an all-risk policy. If more than one unit is listed on the rental agreement, each piece and its value should be listed separately on the certificate to ensure proper coverage.

Many insurers provide blanket limits of physical damage on certificates of insurance, and this may be putting the rental company at risk. The first parties to be paid in the event of a major loss are the banks, lien holders and other rental companies who are listed as loss payees. If the rental company is not listed as a loss payee, it will be paid only if there is money left after all other claims are settled.

Another area of concern that’s often overlooked is policy expiration and renewal dates. Many policies expire while equipment is on rent, and many customers change insurance carriers upon renewal. Be aware of these exposures and implement a good follow-up system.

Finally, before releasing the rental equipment, rental coordinators should confirm that the certificate of insurance is current and valid, or offer a rental equipment protection plan until a valid certificate can be obtained. Additionally, a new certificate of insurance should be obtained on each new rental unless a rental equipment protection plan is in place.

The best method for protecting rental assets is to use an outside service to verify, validate, archive and follow up on expiration dates and renewal dates, with easy access to all rental certificates from any rental-company-owned location.

Tax-exempt forms, claims monitoring and vendor certificates should also be made available to the rental department.

Why customers would prefer not to provide certificates for physical damage insurance: 
1.    There is a charge for each certificate.
2.    It may increase premiums on their Inland Marine policy.
3.    Premiums increased for one project will remain on their policy for the entire year and may never be
       removed.
4.    It is easier and more cost-effective to transact the entire rental process at the rental location.
5.    The type of equipment they are renting may throw up a red flag for being an additional exposure
        that may increase their overall premiums.
6.    Their liability exposure may be increased because of the type of project, resulting in increased
        liability premiums, not just their IM premiums.
7.    Cranes, aerial lifts and other equipment considered a higher risk may be objectionable to their
        carrier.
8.    One loss may be as much as or more than their total business premiums, resulting in increased
       premiums or potential non-renewal. This could also be true for the rental company.

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