What Happens When a Vendor's Certificate of Insurance Is Fraudulent?

A subcontractor's employee gets injured on your site in an accident that results in a $300K claim. Your risk team retrieves the COI from your files and submits it to the insurance company to transfer liability. The insurance company tells you the certificate is fraudulent - the coverage never existed.

Are you now liable for the claim?

We asked Christopher A. Arcitio, Of Counsel at Kaufman Dolowich LLP in New York City, what happens legally when this scenario plays out.

Legal Opinion: The Consequences of Fraudulent COIs

“When General Contractors discover fabricated COIs after a construction accident involving a Subcontractor, they face immediate and cascading consequences. The General Contractor may be required to use their own Workers' Compensation insurance to cover the injured employee. New York State's Workers' Compensation Board enforcement unit may issue a stop work order at the site for the sub's failure to secure required coverage.‍

Each uninsured work-related accident involving a sub may force the GC to use their own coverage, directly increasing their Workers' Compensation rates. While GCs can pursue legal relief against the sub and the sub's Insurance Broker/Agent for breach of contract, fraud claims are extremely difficult to prove. Plaintiffs must demonstrate that the misrepresentation induced their reliance and that their reliance was justifiable - a high legal bar.

Additionally, subs often cease operations after incidents. Even when GCs obtain default judgments, they must still prove damages to the court and spend substantial time and resources attempting to enforce judgments against defunct businesses.‍

A 2016 case in Westchester County Supreme Court illustrates these risks. A General Contractor's subcontract required the sub to maintain workers' compensation insurance. Two accidents involving the sub's employees occurred within three months. At the time of both accidents, the sub had no active Workers' Compensation coverage, forcing the GC's insurance to cover both claims. In the subsequent fraud lawsuit against the sub and its Insurance Broker/Agent, the sub had disappeared, and the court held that the fake COI alone could not support a fraud claim against the broker/agent. To sum up, the liability exposure falls on the GC when there's no viable insurance policy for risk transfer

‍GCs also face risk from other defendants in lawsuits - property owners, developers, and property managers - who can transfer liability to the GC's policy without the GC having recourse to the sub's policy

‍Systems that detect potentially fraudulent COIs before accidents occur ensure GCs have viable subcontractors with legitimate insurance for risk transfer when personal injury accidents happen."

This communique is for educational and promotional purposes and does not constitute legal advice, a legal consultation, or a legal relationship. For legal advice, please see our site to choose an attorney to speak with at Kaufman Dolowich.

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‍What This Means in Plain Terms:

When a vendor's COI turns out to be fake after an accident, you pay for it. Your insurance covers the claim. Your rates go up. You can try to sue the vendor and their broker, but proving fraud is difficult. You need to show that their lie made you rely on them and that your reliance was reasonable. Courts set a high bar for this. Also - other parties in lawsuits (property owners, developers, property managers) can also push liability onto your policy. Without valid subcontractor insurance, you have nowhere to transfer that risk.

The takeaway: if you don't catch fraudulent COIs before accidents happen, you might get stuck with the liability.

How to Check If a COI Is Fraudulent

We have put together a comprehensive guide that walks you through the process step by step: How to Detect Fraudulent Certificates of Insurance: How to Detect Fraudulent Certificates of Insurance: Complete COI Verification Guide.

How Certificial Prevents Fraudulent COIs

Certificial fundamentally changes the approach to insurance certificate fraud detection by eliminating document verification and implementing automated source verification for COI compliance. Because Certificial uses source authentication and real-time policy data, fraudulent COIs cannot enter the system.

How Certificial's automated COI verification works:

1. Only licensed agents, brokers, carriers can submit (no vendor submissions of fake certificates)
2. Certificial verifies identity and licensing before allowing any submissions
3. Each submission tied to verified producer identity for insurance certificate fraud prevention
4. Identity and provenance recorded for every certificate

Certificial's source authentication blocks vendor-submitted certificates at the system level, eliminating the highest-risk fraud vector. Only verified insurance professionals can submit through Certificial, so fake agent impersonation becomes impossible.

What Certificial's source authentication eliminates in COI compliance:

1. Vendor-submitted fraudulent COIs cannot enter the system
2. Fake agent impersonation for insurance certificate fraud becomes impossible
3. Email domain spoofing is detected and blocked
4. Third-party fraud schemes where vendors obtain fake certificates are prevented.

Results: Improved insurance certificate fraud detection through Certificial:

1. 100% source verification (automated by Certificial)
2. Real-time compliance visibility through SmartCOI® preventing fake COI acceptance
3. Zero fraudulent certificates accepted into system because Certificial blocks them at intake

Ready to see Certificial in action?

Learn more about Certificial and request a demo here.

Christopher A. Arcitio is Of Counsel in the New York City office of Kaufman Dolowich LLP and focuses his practice on commercial litigation, professional liability, general liability, and insurance coverage and litigation, and his work includes providing a defense on behalf of insurance carriers for construction accidents. His work includes analyzing whether recent lawsuits alleging fraud and violations of the Racketeer Influenced and Corrupt Organizations known as “RICO”  Act for staged and fabricated personal injury accidents in New York City. He can be reached at Christopher.Arcitio@kaufmandolowich.com.

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