Certificates of Insurance

Certificate of Insurance

Certificates of Insurance

Robin Federici, CPCU, AAI, ARM, AINS, AIS, CPIW

Introduction

What is(n’t) a certificate of insurance?

Informational snapshot onlysnapshot only – Allan D. Windt

A certificate cannot modify a policycannot 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 basic contract law - no consideration has been made on the part of the consideration has been made on the part of the certificate holder certificate holder so, therefore, no contract exists.

THREE MAJOR PROBLEMS

1.1. Fraud by agents & insuredsFraud by agents & insureds – certifying coverage that does not exist

2.2. Onerous contractual requirementsOnerous contractual requirements – that can not be met by coverage typically available in the marketplace

3.3. Cancellation notice issuesCancellation notice issues – not sending a cancellation notice to the certificate holder as indicated on the certificate

SPECIAL ISSUESSPECIAL 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”


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


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 - BTW - The “old” certificate indicated that the “issuing insurer will endeavor to notify . . .


Reading Contracts: It is not uncommon for insureds to asknot uncommon for insureds to ask agents to

review the insurance requirements in contracts in order to advise what types of insurance are needed to comply with these contractual requirements.

Some agenciesSome agencies do this because they have the in-have the in-house qualifications, expertise, and experiencehouse qualifications, expertise, and experience to do so.

Other agencies do this for competitive reasons competitive reasons to to avoid losing an accountavoid losing an account. .


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, the recommendation is for recommendation is for the insured or prospect to have their own legal the insured or prospect to have their own legal counselcounsel proficient in contract law review these contracts, then inform the agent what exposures need addressing from an insurance standpoint


Primary & Non-Contributory:

The ACORD FIGACORD FIG states that the Description field

should be used appropriately:

“As used here, records information necessary to identify the operations, locations and identify the operations, locations and vehiclesvehicles for which the certificate was issued.”


Primary & Non-Contributory:

“Primary and noncontributory” has nothing to do with operationsoperations, locationslocations, or vehiclesvehicles

REMINDER: 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?What is it?

The definition of the term would determine coverage

SPECIAL ISSUESSPECIAL ISSUESPrimary & Non-Contributory:

Insurance policies govern primacy policies govern primacy of coverage,

not certificates or construction contracts

Problems can exist:– if the other party purchases their own insurance

and that coverage is also primary.

– when the other party has been added as an additional insured on our insured’s CGL.

ISO CGLISO CGL “OTHER INSURANCE” PROVISION

4. Other Insurance.

If other valid and collectible insurance is available to the If other valid and collectible insurance is available to the insuredinsured for a loss we cover under Coverages A or B of this Coverage Part, our obligations are limited as followsour obligations are limited as follows:

a. Primary InsuranceThis insurance is primary except when Paragraph b. below

applies. If this insurance is primary, our obligations are our obligations are not affected not affected unless any of the other insurance is also unless any of the other insurance is also primaryprimary.. Then, we will share with 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 . . .This insurance is excess over . . .

(b) Any other primary insuranceother primary insurance available to available to you coveringyou covering liability for damages arising out of the premises or operations, or the products and completed operations, for which you have been added as an additional you have been added as an additional insured insured

ISO CGL “OTHER INSURANCE” PROVISION

c. Method of Sharing

If all of the other insurance permits contribution by all of the other insurance permits contribution by equal sharesequal shares, we will follow this method also. Under this approach each insurer contributes equal each insurer contributes equal amountsamounts . . .

If any of the other insurance If any of the other insurance does not permit does not permit contribution by equal sharescontribution by equal shares, , we will contribute by we will contribute by limitslimits.. Under this method, each insurer’s share is each insurer’s share is based on the ratio of its applicable limit of based on the ratio of its applicable limit of insurance to the total applicable limitsinsurance to the total applicable limits of insurance of all insurers.


UMBRELLA

If an umbrella policy is needed to meet the limits requirements, the umbrella the umbrella policy’s “other insurance” provision policy’s “other insurance” provision would need to be reviewed would need to be reviewed since these contracts are non-standard.non-standard.


Commercial autoCommercial auto

Commercial autoCommercial auto primacy is governed by:

– Ownership

– ISO's symboling system

– Along with various and diverse state laws


WC:

The “primary and non-contributory” language should not be used since 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 ISSUESSPECIAL ISSUES 2013 CGL - Endorsement2013 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 There are some “challenges” with the endorsement wording!endorsement wording!

Primary And NoncontributoryPrimary And Noncontributory– Other Insurance Condition – Other Insurance Condition

Endorsement CG 20 01Endorsement CG 20 01

The following is added to the Other Insurance Condition following is added to the Other Insurance Condition and supersedes any provision to the contrary:

Primary And Noncontributory InsuranceThis insurance is primary to and will not seek contribution primary to and will not seek contribution ffrom any other insurance available to an additional insured under your policy provided that:provided that:

(1) The additional insured is a additional insured is a Named Insured under such other insurance; andand

(2) You have agreed You have agreed in writing in a contract or agreement contract or agreement that this insurance would be primary and would not seek insurance would be primary and would not seek contributioncontribution from any other insurance available to the additional insuredadditional insured.


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

SUBROGATIONSUBROGATION

Policy Language: 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 ISSUESSPECIAL ISSUESNotice of Cancellation:

ISO AI endorsements do not amendAI endorsements do not amend the policy provisions

““First Named Insured”First Named Insured” ONLY receive company generated notices

Other requestsOther requests – non-renewal or material change are not extended to AIs

State Statues State Statues dictate the number of days notice

Consider OCPOCP policies in lieu of AI endorsements

Carriers proprietary forms may comply with these requests

SPECIAL ISSUESSPECIAL ISSUESCGL vs. AI:

Additional insured endorsements are not the endorsements are not the samesame

The unendorsed CGL includes coverage unendorsed CGL includes coverage under the Contractual Liability Exclusion – exception

Defense can be considered an issue Defense can be considered an issue – within the limits UNLESS the “Supplemental Payments” requirements are met

OTHER ISSUESOTHER ISSUESCGL vs. AI:

Endorsements can LIMIT the AI’s CGL coverage

Endorsements can ADD SPECIAL EXCLUSIONS that apply to the AI’s coverage

SPECIAL ISSUESSPECIAL ISSUESCOI vs. Policy Limits:

The certificate only includes an area to list limits

There is no mention of “minimum” or no mention of “minimum” or “actual limits”“actual limits”

ACORD instructionsACORD instructions call for entering the entering the policy limitspolicy limits

ACORDACORD 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?

Robin Federici, CPCU, AAI, ARM, AINS, AIS, CPIW

QUESTIONS?

Documents

Certificates of Insurance