Certificates of Insurance Robin Federici, CPCU, AAI, ARM, AINS, AIS, CPIW Certificate of Insurance
Introduction • What is(n’t) a certificate of insurance? • Informational snapshot only – Allan D. Windt • A certificate cannot modify a policy – Black’s Law Dictionary • Generally courts have agreed that a certificate is not a contract– there was no consideration by the certificate holder
What Have the Courts Said? • Courts, countrywide, generally hold that a certificate holder has no legal recourse against an agency or insurer. • The reasoning – basic contract law - no consideration has been made on the part of the certificate holder so, therefore, no contract exists.
THREE MAJOR PROBLEMS • Fraud by agents & insureds– certifying coverage that does not exist • Onerous contractual requirements– that can not be met by coverage typically available in the marketplace • Cancellation notice issues– not sending a cancellation notice to the certificate holder as indicated on the certificate
SPECIAL ISSUES • Refuse to issue . . . • The choice is yours and your carriers • No contractual requirement, under the policy, to issue a certificate • Refuse to make “implied coverage modifications” on the certificate • Never issue “blank” or “To whom it may Concern”
SPECIAL ISSUES • Excess & Surplus Lines . . . • The wholesale agent must issue certificates • If they have authority to allow the retail agent to issue they may grant the issuance of certificates to the retail agent • Retail agent should receive instructions, in writing, otherwise
SPECIAL ISSUES • Sending Certificates to Carriers . . . • Some agents have determined it is in their best interest • Other agents are instead keeping a log of certificates issued • BTW - The “old” certificate indicated that the “issuing insurer will endeavor to notify . . .
SPECIAL ISSUES • Reading Contracts: • It is not uncommon for insureds to askagents to review the insurance requirements in contracts in order to advise what types of insurance are needed to comply with these contractual requirements. • Some agenciesdo this because they have the in-house qualifications, expertise, and experienceto do so. • Other agencies do this for competitive reasons to avoid losing an account.
SPECIAL ISSUES • Reading Contracts: • From a practical standpoint, many agencies feel that the depth of review of such contracts is a business decision made by the agency. • From an E&O standpoint, therecommendation is for the insured or prospect to have their own legal counsel proficient in contract law review these contracts, then inform the agent what exposures need addressing from an insurance standpoint
SPECIAL ISSUES Primary & Non-Contributory: The ACORD FIG states that the Description fieldshould be used appropriately: “As used here, records information necessary to identify the operations, locations and vehiclesfor which the certificate was issued.”
SPECIAL ISSUES Primary & Non-Contributory: • “Primary and noncontributory” has nothing to do with operations, locations, orvehicles REMINDER: COIs are certifying the policy coverage in place at the time of issuance NOT quoting language found in contracts our insured’s sign!
Primary & Non-Contributory ISO forms – the Issue of “non-contributory” • What is it? • The definition of the term would determine coverage
SPECIAL ISSUES • Primary & Non-Contributory: • Insurance policies govern primacy of coverage, not certificates or construction contracts • Problems can exist: • if the other party purchasestheir own insuranceand that coverage is also primary. • when the other party has been added as an additional insured on our insured’s CGL.
ISO CGL“OTHER INSURANCE” PROVISION 4. Other Insurance. If other valid and collectible insurance is available to the insuredfor a loss we cover under Coverages A or B of this Coverage Part, our obligations are limited as follows: a. Primary Insurance This insurance is primaryexcept when Paragraph b. below applies. If this insurance is primary, our obligations are not affected unless any of the other insurance is also primary.Then, we will sharewith all that other insurance by the method described in Paragraph c. below.
ISO CGL“OTHER INSURANCE” PROVISION b. Excess Insurance (1)This insurance is excess over . . . (b) Any other primary insuranceavailable to you coveringliability for damages arising out of the premises or operations, or the products and completed operations, for whichyou have been added as an additional insured
ISO CGL“OTHER INSURANCE” PROVISION • Method of Sharing If all of the other insurance permits contribution by equal shares, we will follow this method also. Under this approach each insurer contributes equal amounts . . . If any of the other insurance does not permit contribution by equal shares, we will contribute by limits. Under this method, each insurer’s share is based on the ratio of its applicable limit of insurance to the total applicable limits of insurance of all insurers.
Primary & Non-Contributory UMBRELLA • If an umbrella policy is needed to meet the limits requirements, the umbrella policy’s “other insurance” provision would need to be reviewed since these contracts are non-standard.
Primary & Non-Contributory Commercial auto Commercial autoprimacy is governed by: • Ownership • ISO's symboling system • Along with various and diverse state laws
Primary & Non-Contributory WC: • The “primary and non-contributory” language should not be usedsince which WC policy responds is based on the state law in place • For the WC exposure, the non-contributory language would have no effect on benefits, since workers can only collect from their employer for covered WC claims.
SPECIAL ISSUES2013 CGL - Endorsement • ISO is introducing an optional Primary and Noncontributory – Other Insurance Condition Endorsement CG 20 01 • The endorsement revises the Other Insurance Condition • There are some “challenges” with the endorsement wording!
Primary And Noncontributory– Other Insurance Condition Endorsement CG 20 01 The following is added to the Other Insurance Condition and supersedes any provision to the contrary: Primary And Noncontributory Insurance This insurance is primary to and will not seek contribution from any other insurance available to an additional insured under your policy provided that: (1) The additional insured is a Named Insuredunder such other insurance; and (2) You have agreed in writingin a contract or agreement that this insurance would be primary and would not seek contribution from any other insurance available to the additional insured.
SPECIAL ISSUES • Waiver of Subrogation: • Each insurance contract addresses the issue • Additional insured’s are insulated from carrier’s subrogation rights • There are no standard waivers of subrogation so the scope and breath may vary
SUBROGATION Policy Language: • CGL – after the loss • BAP – after the loss • NCCI WC – protect the rights • Commercial Property – in writing before & after the loss there are some limited parties that can be afforded a waiver
SPECIAL ISSUES • Notice of Cancellation: • ISO AI endorsements do not amendthe policy provisions • “First Named Insured”ONLY receive company generated notices • Other requests– non-renewal or material change are not extended to AIs • State Statues dictate the number of days notice • Consider OCPpolicies in lieu of AI endorsements • Carriers proprietary forms may complywith these requests
SPECIAL ISSUES • CGL vs. AI: • Additional insured endorsements are not the same • The unendorsed CGL includes coverage under the Contractual Liability Exclusion – exception • Defense can be considered an issue – within the limits UNLESS the “Supplemental Payments” requirements are met
OTHER ISSUES • CGL vs. AI: • Endorsements can LIMIT the AI’s CGL coverage • Endorsements can ADD SPECIAL EXCLUSIONS that apply to the AI’s coverage
SPECIAL ISSUES • COI vs. Policy Limits: • The certificate only includes an area to list limits • There is no mention of “minimum” or “actual limits” • ACORD instructions call for entering the policy limits
ACORD • ACORD forms: • Do not modify • These are “copy written” forms • Some state require that an altered certificate must be filed and approved by the DOI before issuance • Increased E&O exposure • Breach of agency contract • Commercial Package - Common Policy Conditions
CHALLENGES • Uninsurable Requests – “any act…”, and “primary and noncontributory” • Illegal Requests – non-existent coverage, certificate modifications, and violations of state law • Inappropriate Requests – cancellation requests and non-ACORD certificates • Impractical Requests – unavailable or expensive coverage.
NON-ACORD CERTIFICATES • Most require that they are issued by “the insurer” • Language may be different from the standard ACORD Forms • Agents may not be authorized in their contracts to issue so they can not sign on-behalf of their carriers
State Issues Due to the challenges associated with certificates of insurance, several insurance departments have either: • Posted “bulletins” • Required COIs to be filed • Instituted state statutes – NAIC Model Fraud Law
Risk Management Issues • What does your organization do? • Do you have formal, written certificate procedures? • Is there quality control to ensure compliance?