Should AI Endorsements Be Sent to Additional Insureds?

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, 4^th 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.