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Certificates of Insurance Q&A

Author: Bill Wilson

Recently we conducted teleconferences on certificates of insurance based on our white paper, "Certificates of Insurance: Issues and Answers." Following these teleconferences, we received a number of questions which, along with "answers," are presented on this page.

 

Note: To access our 53-page white paper on "Certificates of Insurance: Issues and Answers," scroll to the end of this page. 

Question"I am in the process of updating our policies and procedures manual and am now on the cancellation section and I have a few questions regarding certificates.

 

"1.  Can we to refuse to issue a certificate of insurance if the policy is pending cancellation?

"2.  Are we obliged to issue the certificate?

"3.  If we do issue a certificate, do we show the full policy term or should we enter the pending cancellation date?"

Answer1.  The agency and carrier can refuse to issue a certificate for any reason. Pending cancellation is certainly a good one.

2.  The agency doesn't have to honor a certificate request from anyone. There's nothing in the insurance contract that requires compliance to a request from a third party or even the insured. Of course, failure to do so may result in the loss of the account, but there's no contractual or moral obligation unless provided for by the policy (e.g., a mortgagee) or endorsement (e.g., loss payable clause).

3.  The certificate is a snapshot in time of coverages and policy terms at the instance of issuance. I don't think the agency has an obligation to a third party to provide anything more than what is on the certificate...i.e., no explanations not indicated on the certificate itself are necessary.

If a cancellation is pending and unlikely to be withdrawn, I'd be inclined to not mislead anyone and politely decline the request to issue one since, if anyone pays any attention to the "will endeavor to" cancellation language on the certificate, notice of cancellation would be forthcoming. By making this a formal procedure and applying it without exception by all agency staff, the agency has something to fall back on.

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Question"Certificate of Insurance question. Waivers and additional insureds are going to be different wording based on the company writing the coverage. It has been our agency practice for years to insert on the ACORD certificate and oil company certificates what the endorsement restrictions/exclusions are. Is this a good practice? What are your recommendations?"

AnswerHere are some thoughts from the VU faculty:

 

FAculty Response
It shouldn't hurt unless your insert is broader or more restrictive than the policy. If you are summarizing coverages you might want to make a report to your E&O carrier about a potential claim.

Faculty Response
Consider attaching a Certified Copy of the policy.

Faculty Response
I agree that it is good to list the information but would rather you just staple a copy of the endorsement to the certificate and let them read it for themselves. That way it is the insurance form wording and you will not inadvertently mislead with your own wording.

Faculty Response
The ACORD certificate for liability insurance has, since 1997, required the completer of the certificate to list the endorsement on a policy that are exclusions. So you have been doing the right thing. Until that requirement is changed, it would be good practice to continue this, because some agents are being sued for misrepresenting coverage; that is, by not listing the exclusionary endorsements, in cases where they apply, they are representing to the certificate holder that none applies. Keep doing it!

Faculty Response
With the permission of your insured, I would insert only the information called for by the contract and ACORD form, without changing any of the existing wording. The ACORD form provides for the following:

     DESCRIPTION OF OPERATIONS / LOCATIONS / VEHICLES / EXCLUSIONS ADDED BY ENDORSEMENT / SPECIAL PROVISIONS

This is what the ACORD Forms Instruction Guide says about this information block:

Record information necessary to identify the operations, locations or vehicles for which the certificate was issued. Any exclusion endorsement or special policy conditions should also be indicated.

Information about additional insureds should also be shown here. However, if it is necessary to show several additional insureds for liability coverages (e.g., mortgagees, vendors, landlords, etc.), and there is not enough room on the form, use the Descriptions box to indicate "see Additional Interest form, ACORD 45, attached" and use ACORD 45 to show the information pertinent to the additional insureds.

Be wary of non-ACORD forms. Do not issue one without the express permission of the insurance company (it's preferable to have the insurer do it), make sure the language does not incur liability for the agency to do something not called for in the underlying policies, and don't issue a certificate that is an obvious ripoff (i.e., copyright violation) of the ACORD form.

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Question"If our agreement with a wholesaler/E&S broker states that we can issue a certificate, can we do so even if we are not the agent for the carrier? When there is a pending cancellation, is it correct to make the expiration date the date of cancellation? Consider a certificate 2/15/07 with the 30 days cancellation notice, a certificate is issued and then a cancellation is issued that day or the following date...how are we providing 30 day notice? We're in New York"

AnswerHere are some thoughts from the VU faculty:

 

Faculty Response
N.Y. Insurance Law does not address the question of who may issue a certificate of insurance. This is a contractual matter between the retail agent, the wholesaler, and the insurer. The only restriction the Insurance Department has stated about certificates is that they can’t be used to change a policy (see circulars from 1995 and 1998). The laws and regulations governing excess line brokers do not mention certificates at all.

Faculty Response
Many questions with no good answers.

First, you ask, "if our agreement with the wholesaler states that we can issue a certificate, can we do so even if we are not the agents for the carrier?" Only if the wholesaler has the right to issue certificates and delegate that to you. Be very careful and get authorization in writing from the wholesaler before doing so — it won't protect you but might give you a right to indemnity back against the wholesaler.

When there is a pending cancellation, is it correct to make the expiration date the date of cancellation? I would make sure that the certificate holder knows that the date of expiration is a cancellation date.

Regarding the question, "a certificate 2/15/07 with the 30 days cancellation notice, a certificate is issued and then a cancellation is issued that day or the following date, how are we providing 30 day notice?" You are only required to give them notice of the cancellation — if the date of cancellation is earlier, it becomes impossible and the Additional Insured or Certificate Holder may have 30 days of insurance even if the named insured does not.

Faculty Response
Technically, the retailer should not be issuing a certificate that is the wholesaler's job. But if the wholesaler does not mind, you should not do it until you have written permission. Even though written permission is obtained, the retailer should not issue notices of cancellation or nonrenewal. The retailer's sole role would be to issue certificates solely for informational purposes and nothing else. If you go beyond that role, you can expect problems.

Faculty Response
An agent lost a case regarding a certificate expiration date when the policy expiration date was entered (12/31) instead of the pending cancellation date (8/7).  The loss occurred 9/10, after the policy cancelled. The property carrier of the certificate holder paid the claim and the subro action then followed.

The risk manager of the certificate holder testified that the insured would not have been allowed to come on the premises if the 8/7 date was known. The agent stated that the insured always paid the premium, that is why 12/31 was put in. The agent also stated that it would cost the agency $$ to reissue the certificate after the premium was paid.

The agent and their E&O carrier settled with certificate holder property carrier far in excess of what it would have cost to reissue the certificate.

Faculty Response
This is a bit of a "sticky wicket." When you have the authority from the E&O broker to issue the certs, you also have some additional responsibilities. The ability to issue certs is a value-added proposition to our customers, but may add legal responsibilities for the agent. Be careful that you are acting within the scope of your authority.

Faculty Response
If the brokerage agreement authorizes you to issue certificates, then I would presume you can do so...assuming the carrier acquiesces as well. You might ask for confirmation from the wholesaler that they have the authority to delegate this on behalf of the carrier. Some/many E&S carriers won't grant this authority due to the nature of the business they're writing.

Regarding notice of cancellation. A certificate is a snapshot in time, so you should provide the information that is accurate at that point in time. As for providing notice of cancellation, the certificate should not include any such notice unless it is a right by contract (i.e., the policy). I'm not aware of any ISO additional insured endorsements that grant 30 days notice to an AI for cancellation.

Since almost all state laws permit just 10 days notice of cancellation for certain reasons (e.g., nonpayment), why would greater notice be given to a certificate holder than the named insured? It is a BAD idea to agree to provide 30 days notice of cancellation when that's not possible. You're just asking to be sued.

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Question"One of our companies doesn't want us to send them copies of the certificate of liability insurance. My question is two part:

"1) The certificate of liability form states the "issuing INSURER will endeavor...how can the agency be held responsible for notification for what is stated clearly the carrier's responsibility?

"2) If the company doesn't want a copy of the certificate, why should the agency start notifying certificate holders?

"Should agencies assume the responsibility of what is the carrier's duty? Does the agency have a legal exposure? If yes, then how do you suggest agencies respond?

AnswerHere are some thoughts from the VU faculty:

 

Faculty Response
The short answer is that the agency should continue to send the certs to the carrier. Even if they say they don't want them, send them anyway. The agency is NOT obligated to send notice of cancellation UNLESS they have altered the "endeavor to" wording on the certificate. Advise the insurance company that your internal procedures, as well as your E&O carrier, require that you send a copy of each certificate issued and that they insurer should NOT return them to your office.

Faculty Response
Even though some insurers do not want copies of certificates, some agents are still sending them. Others are complying with insurer requests by not sending them but keeping a log. When the certificate says the insurer will endeavor to send notice, rest assured no notice will be sent. The exception is when the policy is endorsed with a list of certificate holders who will be given notice. It is up to the insurer to issue the notices. Agents should not get involved in doing the insurer's work.

If notice is not sent and the certificate holder was harmed by the failure to do so, the insurer and its agent are likely to be sued. The best defense, however, is to show that the agent complied with the insurer's directive. Do not send certificates, keep a log and do nothing further. There is nothing to prevent an agent from being sued. But documenting what you do is the best defense from having to pay any damages. Above all, the agent should not notify the certificate holders because that is the insurer's obligation.

Faculty Response
First, remember that anyone can sue and the first important part of any liability policy is defense coverage. This could add up to more than your agency's E&O retention.

Second, can you see this in court? The agent issued a Certificate of Insurance to a holder that states that the insurer will endeavor to mail, all the time certain that the insurer never endeavors to mail. Some would think that is a fraudulent act. The insurer states that they did not issue the certificate and does not receive copies of the Certificates. So they state they are not responsible for the agent's actions.

Your best defense is to send out notices of intent to cancel to Certificate holders. It is also the best collection method for nonpayment cancellations.

Faculty Response
1) The certificate of liability form states the "issuing INSURER will endeavor...." How can the agency be held responsible for notification for what is stated clearly the carrier's responsibility?

The carrier has the authority to delegate this function to the agency. If that's the case, then the agency incurs the risk of failing to notify. I just got a directive from a major regional carrier recently with the huge headline "Great News." It told its agency force that they no longer wanted copies of certificates and that it was the agency's responsibility to provide notice of cancellation.

Also, it's possible for an agency to indicate that cancellation notice will be provided when the policy grants no such right of cancellation. In cases like this, the agency would be exposed to a lawsuit.

2) If the company doesn't want a copy of the certificate why should the agency start notifying certificate holders? Should agencies assume the responsibility of what is the carriers duty?

We just had a teleconference on this and related issues last week. Our E&O carrier and attorney participating in the call advised, regardless of the carrier's directive, that certificates should be copied to the insurer. You're right...the certificate says that the insurer, not the agent, will endeavor to provide notice of cancellation. Without a copy of the certificate, that would be impossible and issuance of the certificate would appear to be a sham. In a court hearing, how would it look if the plaintiff's attorney accuses the carrier and agency of fraud or dishonesty for making a claim they clearly had no intention of compying with?

In general, since the parties to the contract are insurer and insured, agencies should NOT be sending out cancellations to anyone. If it's absolutely necessary, then EVERYONE should be getting such notices. Agencies should insist on hold harmless agreements with carriers who do not intend to comply with certificate provisions that they will endeavor to provide notice of cancellation.

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Question"When small contractors request certificates for the general contractor, I give them extra copies of their declarations page to give to the general or I fax to the general a copy of the declarations page. What do you think of this practice? Small contractors have a bad habit of not paying premiums."

AnswerHere are some thoughts from the VU faculty:

 

Faculty Response
If it satisfies the general, it's a service but it is not a Certificate...it is a copy of a declarations page that tells the contractor very little. You are not, however, providing the service for which you are being paid.

Faculty Response
I do not like the idea. The certificate just shows that the policy is in force at the time the certificate was issued. A “contract copy holder” might be able to argue a larger case that this was a copy of a valid contract and thus granted coverage even if the insured had cancelled or been cancelled. I think you are giving too much.

Faculty Response
It is a bad idea. Contractors frequently hand out copies of their declarations pages after the policies have been canceled. I would limit certificates to the requested party. If someone requests a copy of a declarations page or certified copy of a policy, send it to the requesting party and place a date of transmittal on the document.:

Faculty Response
I think this is a pitiful practice and any GC should reject attempts to avoid providing information that is contractually required.

Faculty Response
I am surprised people requesting certificates would accept just a copy of the declarations page. As long as it works, I think it is fine. The problem comes up when someone refuses it and wants the certificate. What do you do about insurance specifications on contracts your insured signs? But perhaps your insureds never sign contracts.

Faculty Response
As long as the general contractors accept the declarations rather than certificates, it appears okay. Does the declarations page confirm whether an additional insured endorsement applies?

Faculty Response
I don't know that there's anything inherently wrong with it as long as the GC will accept it and it's OK with the insured. However, to me there is information on a Dec. page I wouldn't want, as an insured, a certificate holder to know about.

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Question"At an agency meeting this week, we discussed your white paper. We had a lively and interesting discussion afterwards and a question arose which I wanted to run by you and the experts. When we issue a Cert showing products and completed operations coverage in the current policy year and the insured either goes out of business or goes bare, do we have an ethical responsibility to notify prior certificate holders of the non-existence of continued products and completed operations coverage? Or should we assume the certificate holders will understand this coverage's features in such circumstances? If transparency and disclosure is the goal, where or when does it end?"

AnswerUnless the contract between your insured and the certificate holder calls for keeping P/CO coverages in place for "X" numbers of years after the contract or projected expires, there's no need to provide notice of any kind that I can think of. Any mention of P/CO coverage on the certificate of insurance is for the one policy year shown on the certificate. There is no continuing obligation after the expiration date of the policies shown on the certificate.

The E&O carrier would almost certainly prefer that agents minimize contact with other parties regarding cancellation or dropped coverages or, at a minimum, be consistent in how all such insureds or other parties are contacted. The greater the expectations created in the minds of others, the possibly greater exposure the agency has for an E&O claim based on detrimental reliance or some other noncontractual legal claim.

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The VU has published a 53-page white paper that addresses many of the problems faced by agents when dealing with certificates. This paper is available for free to IIABA member agencies and paid VU subscribers, and may be purchased using the order form below by all others. In addition, links to related information are included below.

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