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Should AI Endorsements Be Sent to Additional Insureds?

Author: Bill Wilson 
“We are in the process of updating our procedures on Certificates of Insurance for commercial lines. Since insurance companies keep shrinking and narrowing coverage language on their Additional Insured forms, I am considering mandating in our procedures that we attach the forms to our certificates of insurance as the rule. Before I put this in our procedure, are we better off not attaching coverage forms to a certificate?”
We have suggested for years that providing the actual policy forms, with the insured’s OK, is not a bad idea. It puts the onus on the other party to actually read them. There is case law that says, if you are an insured under a policy, you have an obligation to read and understand the policy, especially if a copy has been provided to you. It’s hard to claim ignorance or claim misrepresentation on the part of the agent if the actual insurance contract is provided.
For example, Admiral Insurance Company v. Cresent Hills Apartments, 328 F.3d 1310 (U.S. Ct. App. 11 Cir. 2003) cites Brooks Brown Ins. Agency, Inc. v. Harden, 236 Ga.App. 781, 513 S.E.2d 755 (1999):
“…an insured has a duty to take certain steps for its own protection such as reading their policies, certificates of insurance or any cancellation notices in their possession.”
Alabama Electric Cooperative, Inc., et al. v. Bailey’s Construction Company, Inc., Ala. Sup. Ct. (2006) cites several sources:
“An insured has a duty to read the insurance policy and is charged with knowledge of its provisions.”
“The Court concludes that [the client], claiming to be an additional ‘insured’ under [the policy], should be held to the same obligation as a named insured to review a policy of insurance on which it seeks to rely, and its reliance solely on the agent’s certificate of insurance is not reasonable under the circumstances….”
“Where an entity requires another to procure insurance naming it an additional insured, that party should not rely on a mere certificate of insurance, but should insist on a copy of the policy.” – Couch on Insurance (3d ed. 1997)
“Thus, the Court finds that Plaintiffs’ reliance upon [the insurance broker’s] representation of [the client’s] additional insured status was not reasonable. Accordingly, as a matter of law, Plaintiffs’ claims for negligent and fraudulent misrepresentation fail.”
In Multicare Health System v. Lexington Insurance Company, 9th Circuit (2013), a staffing company with a professional liability policy contracted with Multicare. The policy had a $1M SIR that was not mentioned on the ACORD 25. The staffing company went bankrupt and didn’t pay a $785K malpractice judgment which was within the SIR. The Court did not believe “that the Washington Supreme Court would find a duty to disclose a self-insured retention amount on a certificate that summarizes insurance policies and does not contain a column for retention or deductible amounts. This is especially true in light of the fact that the hospital could have asked [staffing company] for a copy of its insurance policy.”
In a NY state trial court decision, 720-730 Fort Washington Avenue Owners Corp. v. Utica First Ins. Co. (2009), the court found that a policy named two other parties as additional insureds did not provide “illusory” coverage in violation of public policy. According to the court, the only rule applicable in this case is “caveat emptor,” let the buyer beware. According to the court:
“This maxim summarizes the rule that a purchaser must examine, judge and test for himself [Black’s Law Dictionary, 4th Ed.]. While the insurance policy may have been misleading and rendered meaningless due to the exclusions, Fort Washington and DNA nevertheless had a duty to do a ‘due diligence’ review of the policy presented by Rauman. Had they read the policy when it was first presented they may have observed the exclusion and rejected the policy as not in compliance with the construction contract requirements.”
While a trial court decision does not establish legal precedence, this one is a good example of why it is important to review policy forms rather than accept certificates of insurance at face value and how such review might be legally imposed to prevent recovery where exclusions, if read, would be clearly indicated.
Our 2013 webinar that discusses this issue is now available to Big "I" member agencies here:
“The Additional Insured Illusion... and Other Feats of Contractual Risk Transfer Magic
 Even David Copperfield Couldn’t Pull Off”
 View for free (2 hours)
 Presented live on January 9, 2013
This webinar addresses contractual liability, additional insured, and certificates of insurance issues that are the subject of controversy in the insurance industry. This program examines those issues and the disputes that invariably arise from them. The focus is on how to recognize the issues, understanding their impact on all parties, how courts are interpreting controversies, and how to respond to claims and suits arising from the issues.
In addition, we have now made the following 2015 COI webinar free to member agencies as well due to a recent upsurge in COI questions that we have been answering for years:
“Certificates of Insurance - 2015 Edition”
 View for free (3 hours)
 Presented live on September 16, 2015
Some agents have placed information or specifically requested wording on certificates of insurance, compliance checklists, or agent affidavits that include knowingly incorrect information. Sometimes it is well meaning and trying to save a customer from losing a job or a paycheck for completed work. Sadly, in some cases there are likely agents who do it when more law-abiding and ethical agents won’t so that they can keep or get the business. This webinar continues the Certificate of Insurance conversation by discussing where problems most often begin, additional insureds and contractual insurance requirements. While researching the issue, don't miss the Certificates of Insurance featured resource page.
For other FREE recorded webinars, click here.
For non-free recorded webinars, click here. While there is a price attached to these webinars, the entire agency staff can view them for that one, low price.
Last Updated: February 12, 2016
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