Post on 23-Dec-2015
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”
SPECIAL ISSUESSPECIAL 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 ISSUESSPECIAL 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 - BTW - The “old” certificate indicated that the “issuing insurer will endeavor to notify . . .
SPECIAL ISSUESSPECIAL ISSUES
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. .
SPECIAL ISSUESSPECIAL 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, 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
SPECIAL ISSUESSPECIAL ISSUES
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.”
SPECIAL ISSUESSPECIAL ISSUES
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.
Primary & Non-Contributory
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.
Primary & Non-Contributory
Commercial autoCommercial auto
Commercial autoCommercial auto primacy 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 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.
SPECIAL ISSUESSPECIAL 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
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?