Certificates of Insurance Contractual Liability and Additional Insured Issues

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1 Certificates of Insurance Contractual Liability and Additional Insured Issues OR HOW I GOT A JOB IN THE PRISON LAUNDRY Presented by the Independent Insurance Agents & Brokers of America in conjunction with the Big I Virtual University 2nd Edition March 2009 Copyright by Independent Insurance Agents & Brokers of America

2 Disclaimer The purpose of this program is to assist agents and brokers in considering issues relevant to certificates of insurance. This program includes only general information, and is not intended to provide advice tailored to any specific insurance situations. It was prepared solely as a guide, and is not a substitute for agents and brokers independently evaluating any relevant business, legal or other issues, and is not a recommendation that a particular course of action be adopted. If specific advice is required or desired, the services of an appropriate, competent professional should be sought. Copyright Notice, Inc. All rights reserved. Presentation of this program, including reproduction or display of any printed or electronic materials is limited to IIABA national and state associations in accordance with the permissions outlined below. All information and content included in this material, including but not limited to (i) text, graphics, logos, icons or images; (ii) data and content compilations; and (iii) software, is the property of the Independent Insurance Agents & Brokers of America, Inc. (IIABA) or its content or software suppliers and is protected by United States and international copyright laws. You may not modify, copy, distribute, transmit, display, publish, sell, or license any information from this material without the express written consent of IIABA and any applicable third-party owner or licensor. You may not create derivative works, or use any information or content for commercial or public purposes without the express written consent of IIABA and any applicable third-party owner or licensor. In addition, you may not reproduce, transmit, transcribe, store in a retrieval system, or translate into any human or computer language any part of the material in any form or by any means whatsoever without the express written consent of IIABA. Such consent may be requested by contacting Bill Wilson at Bill.Wilson@iiaba.net. Includes copyright material of Insurance Services Office, Inc.. ACORD Corporation, and International Risk Management Institute, Inc. with their permission. Reproduction and Presentation Permissions This program was designed to be presented by IIABA state associations to their membership and seminar participants. We recognize that seminars based on this program may be presented on behalf of state associations by independent contractors, as opposed to staff members. That is permissible. However, this program cannot be offered independently by such instructors to non-iiaba groups nor included in their marketed listing of available courses unless they are VU faculty members and even then not in competition with our national or state associations. 2

3 Acknowledgements The foundation of this program is a series of Big I Virtual University web site articles, culminating with the white paper, Certificates of Insurance: Issues and Answers, written by myself and members of our 50-person volunteer faculty and published in our free bi-weekly newsletter, The VUpoint. To subscribe to this free newsletter, go to: This information was supplemented by literally hundreds of s, articles, and conversations with insurance and risk management professionals from around the country. Once the draft of the white paper was completed, I distributed it to over 100 agents, consultants, educators, attorneys, and risk managers for their feedback. That process continues to this day. In particular, I d like to thank consultant Don Malecki for his thoughtful comments, Joel Volker of ACORD and the staff at Westport Ins. Co. for their critiques, and Jack Gibson and the folks at the International Risk Management Institute (IRMI) for allowing us to address some issues raised in their Construction Risk Insurance Specialist (CRIS) designation program. I d also like to thank three of our state associations for their contributions to this program. First, a wink and a nod to the Independent Insurance Agents of North Carolina for allowing us to use the clever subtitle of this program which was coined by incarcerated staff member Stuart Powell for a similar seminar presented to their member agencies. Second, thanks to the Florida Association of Insurance Agents for sharing information from their certificates seminar. Third, special thanks the Independent Insurance Agents of Texas for allowing us to make extensive use of their outstanding Best Practices for Certificates of Insurance white paper answers to questions as to the appropriate procedures for dealing with many of the issues raised in this program may be found in this comprehensive, practical document available in the VU Certificates of Insurance Resources section.. In March 2008, after our national board of state directors adopted a position paper on certificates of insurance, we began to offer the white paper and related documents and articles for free to the general public. To access our Certificates of Insurance Resources section of the public area of our Virtual University web site, go to: Finally, throughout this presentation and in the Appendix of this handout, you will find web links to information on our web site as well as others. Most of these links take you to the public area of our web site or other public web sites. However, because the vast majority of our Virtual University content is proprietary, some of these links require a login and are accessible only to IIABA members and paid VU subscribers. If you are interested in Big I membership or a VU subscription, go to: If you are already employed by a member agency but do not know your user name and password, send an to logon@iiaba.net with your name, agency name, and contact information. Bill Wilson, CPCU, ARM, AIM, AAM Assoc. VP, Education & Research Director, Big I Virtual University April

4 Preface This program was developed as part of a comprehensive education and public relations initiative that has evolved from our original January 2007 white paper Certificates of Insurance: Issues and Answers and the position statement adopted by our board of state national directors in the fall of This initiative begins with carrying the message of certificates of insurance issues to our member agencies. The initiative continues by encouraging member agents to take this message to insureds and noninsurance industry groups. To accomplish this, we have developed a program entitled, Certificates of Insurance: Rolling Stone Syndrome Or You Can t Always Get What You Want (see Appendix). This program consists of an article that agents can use as a handout following a presentation or submit to publications of local homebuilder, lender, transportation, or other associations and government entities. Also included is a PowerPoint presentation based on the article that can be presented to noninsurance industry groups as a minute format at luncheons or other events. This information can be downloaded here: We encourage all of our member agencies to assist in this educational and public relations effort. If you need additional information, check with the VU Certificates of Insurance Resources section at If you have any questions, contact your state association office or the VU Ask an Expert service. If you do not know your VU login, send an to logon@iiaba.net with your name, agency name, and contact information. Once again, I d like to recognize the Construction Risk and Insurance Specialist (CRIS) designation program of the International Risk Management Institute and IRMI s permission for us to use a tiny part of their Contractual Risk Transfer in Construction course. If you find this program to be of value and would like to gain considerably more expertise in the construction industry, we highly recommend IRMI s CRIS program which is being offered by many of our state associations around the country in a seminar format and elsewhere as an online program. For more information about CRIS, go to: 4

5 Table of Contents INTRODUCTION 7 What is a Certificate of Insurance? E&O Statistics and Case Studies Scope of the Problem Solutions to the Problem CONTRACTUAL INSURANCE REQUIREMENTS AND ADDITIONAL INSUREDS 11 Indemnity (Hold Harmless) Agreements Agent "Opinion" Letters Reviewing Contracts for Insureds Common Contractual Requirements and Issues Primary and noncontributory Waivers of subrogation Notice of cancellation Certificate vs. policy limits Sample Contract Provisions Construction contracts Commercial lease agreements Commercial loan agreements Contractual Liability vs. Additional Insured Status Additional Insured Issues ISO CGL endorsements Non-ISO CGL endorsements Business auto endorsements Workers compensation and employers liability Additional insureds vs. OCP coverage POLICY PROCESSING FORMS AND ISSUES 33 ACORD Forms History of certificates General information ACORD 24 Certificate of Property Insurance ACORD 25 Certificate of Liability Insurance ACORD 27 Evidence of Property Insurance and ACORD 28 Evidence of Commercial Property Insurance Evidences of insurance and lenders Copyright Issues Non-ACORD Forms, Agency/Company Agreements, and E&S Markets Agency Certificate Procedures Sending Certificates to Insurers Charging Fees for Certificates CERTIFICATE STATUTES, REGULATIONS AND DOI DIRECTIVES 40 NAIC Model Fraud Law Unfair Trade Practices Laws Model DOI Bulletin Certificate-Specific Statutes, Regulations and DOI Directives 5

6 CERTIFICATE CASE LAW 41 Cases Where the Agent Wins Cases Where the Certificate Holder Wins How the Certificate Holder Wins Fraudulent certificates Ostensible agency authority Deceptive, incomplete or misrepresentative certificates Certificates lacking disclaimer language Non-ACORD forms CERTIFICATES OF INSURANCE Q&A 42 CONCLUSIONS AND RECOMMENDATIONS 43 APPENDIX 46 Certificate Checklist IIABA Position Statement on Certificates of Insurance Additional Reading and Resources in the Big I Virtual University Other Additional Reading and Resources How To Access the Big I Virtual University How To Subscribe to the FREE VUpoint Newsletter Agent Certificates of Insurance Article/Presentation 6

7 Introduction What is a Certificate of Insurance? A certificate of insurance is a document issued by or on behalf of an insurance company to a third party who has not contracted with the insurer to purchase an insurance policy. The most common type of certificate is that provided for informational purposes to advise a third party of the existence and amount of insurance issued to the named insured. Allan D. Windt, Insurance Claims and Disputes, 4th ed., 2001 A document acknowledging that an insurance policy has been written, and setting forth in general terms what the policy covers. Black s Law Dictionary Certificates are simply snapshots of basic policy coverages and limits at the time of issuance of the certificate. Certificates are for informational purposes only and are not intended to modify coverages or change the terms of the insurance contract. Certificates are also not contracts at least courts have generally held that to be the case as long as the appropriate disclaimer language is used and there is no consideration provided by the certificate holder. Certificates do not extend any contractual rights to the holder not provided for in the policy(ies). This is confirmed by several disclaimers in the ACORD 25 Certificate of Liability Insurance: 1. This certificate is issued as a matter of information only and confers no rights upon the certificate holder. This certificate does not amend, extend or alter the coverage afforded by the policies below. 2. Notwithstanding any requirement, term or condition of any contract or other document with respect to which this certificate may be issued or may pertain, the insurance afforded by the policies described herein is subject to all the terms, exclusions and conditions of such policies. 3. The Certificate of Insurance on the reverse side of this form does not constitute a contract between the issuing insurer(s), authorized representative or producer, and the certificate holder, nor does it affirmatively or negatively amend, extend or alter the coverage afforded by the policies listed thereon. IMPORTANT CAVEAT: THIS DISCLAIMER LANGUAGE SHOULD NEVER BE REMOVED FROM A CERTIFICATE AND, IN FACT, SOME STATES PROHIBIT SUCH MODIFICATION OR IT MIGHT BE DEEMED A COPYRIGHT VIOLATION. These informational certificates are usually issued in conjunction with a contractual relationship between a third party and the named insured, requiring that the named insured have a particular amount and type of insurance and often that the other party be named as an additional insured under the policy(ies). Such requirements are particularly common in construction contracts with large contractors, government entities, and major corporations, but also occur in many business contracts, including commercial leases and loan agreements. 7

8 E&O Statistics and Case Studies We all know that, by and large, certificates are not contracts. So, there s no need to be overly concerned about the accuracy and wording on the certificate, right? Not according to E&O statistics. During the past year of data collection, E&O claims involving certificates of insurance have increased 28%. About 1 in 25 E&O claims involves a certificate of insurance (double that in some states). Over half of all claims arise from an error or omission by a CSR. About 75% of E claims involve a CGL policy, followed by workers compensation at 10%. The two main sources of certificate E&O claims are: 1. Failure to add, or improperly identifying, additional insureds (36%), and 2. Misrepresenting coverage on the certificate that doesn t actually exist (21%). CSRs are primarily accused of being responsible for the former and producers for the latter. Why? Example: Contractor on a Government Project Does your agency have written certificates procedures, are all employees required to follow them, and is compliance monitored? Case Study #1: Settlement vs. Trial Result: $ paid claim and $ paid claim expenses. 8

9 Case Study #2: Certificate Holders and Additional Insureds Result: $ paid claim and $ paid claim expenses. Case Study #3: Doing Favors for (Former) Customers Result: $ paid claim and $ paid claim expenses. Scope of the Problem There seem to be three major problems that arise most often regarding certificates of insurance: Fraud and Misrepresentation Certificate fraud is an issue addressed largely by contract law, regulatory governance, and specific statutes in some states. Certificate fraud is not limited to unscrupulous agents and, in fact, may be undertaken by insureds themselves. Two examples:

10 Onerous Insurance Requirements From the standpoint of many businesses and governmental entities, it doesn t hurt to ask for the moon, even if you know you won t get it. They ask because they have the leverage to do so and it s in their best interest. According to IRMI s Contractual Risk Transfer in Construction course ( there are three parameters of contractual risk transfer at contract negotiation time: Wish List the contract drafter s preferred conditions. Fallback Position not ideal, but acceptable. Deal Breaker unacceptable degree of risk. Unfortunately, some agents will indicate, usually by a certificate of insurance, that their insured is in compliance with specific insurance requirements when they re not. Often organizations will ask for coverages out of ignorance. Contracts may specify additional insured endorsements that are dated over 20 years ago. If a company (or ISO) has filed a new endorsement and withdrawn an older one, the carrier usually cannot legally provide the older form without refiling it. However, some agents indicate on the certificate of insurance that the form or its equivalent is being provided. Cancellation Notice One other issue is the will endeavor to cancellation wording that very few insurers follow. This has the potential to become a legal problem in some states, though many consider it one of ethics regardless...is it ethical to provide a certificate that says the insurer will attempt/try (i.e., endeavor ) to provide cancellation notice when it's clear that the insurer has no intention of doing so? These and many other issues are addressed in this program. Solutions to the Problems The solution to the problems outlined in this program is threefold: This program, the included agent presentation package, and related white papers and articles available on the Big I Virtual University and elsewhere should provide the ammunition needed to accomplish these goals. 10

11 Contractual Insurance Requirements and Additional Insureds Indemnity (Hold Harmless) Agreements An indemnity, or hold harmless, agreement is a contract provision where one party (the indemnitor, or downstream party) agrees to indemnify the other party (indemnitee, or upstream party) for liabilities arising out of the execution of the contract. Here s an example that demonstrates that hold harmless agreements are not harmless and, in fact, may be hazardous to your E&O health: To the fullest extent permitted by law, ABC Little Corporation, Inc. (hereafter referred to as ABC ) agrees to defend, indemnify and save harmless XYZ Big Corporation, Inc. (hereafter referred to as XYZ ) and Owner, as well as any other parties, which XYZ is required under the Contract Documents to defend, indemnify and hold harmless, and their agents, servants and employees, from and against any claim, cost, expense or liability (including attorneys' fees), attributable to bodily injury, sickness, disease, or death, or to damage to or destruction of property (including loss of use thereof), caused by, arising out of, resulting from, or occurring in connection with the performance of the work by ABC, its subcontractors and suppliers, or their agents, servants, or employees, whether or not caused in part by the active or passive negligence or other fault of a party caused by the sole negligence of a party indemnified hereunder. ABC's obligation hereunder shall not be limited by the provisions of any worker's compensation or similar act. ABC hereby agrees that One Hundred Dollars and No/Cents ($100.00) of the Price constitutes the separate consideration for ABC indemnity hereunder. Such amount shall be deemed paid out of the first invoice for payment paid hereunder. Another example upheld by a court: One more: Contractor agrees to protect, defend, indemnify, and save operator, its officers, directors, employees, and joint owners harmless from and against all claims, demands, and causes of action of every kind and character, without limit and without regard to the cause or causes thereof or the negligence of any party or parties, arising in connection herewith in favor of Contractor's employees or Contractor s subcontractors or their employees, or Contractor's invitees, on account of bodily injury, death or damage to property. Owner will exercise no control or right of control over the employees or details of the work. Contractor is to furnish his own tools and Owner is interested only in the final results of the completed contract. Contractor is doing the work under contract and is an independent contractor and not an employee of the company. By signing the below statement, the seller agrees to protect, defend, indemnify, and save harmless Owner against loss, damage, or expense by reason of any suits, claims, demands, or judgment and causes of action caused by the seller, its employees, agents or any subcontractor arising out of or in consequence of the performance of this contract. It is the intention of the Seller and/or Contractor to indemnify Owner even in the event that any such claims, demands, actions or liability arises in whole or in part from warranties, express or implied, defects in materials, workmanship or design, condition of property or its premises and/or negligence of Owner or any other fault claims as a basis of liability for Owner. 11

12 The above contract provisions may appear outrageous in their broadness, but they are very common and often cannot be addressed by insurance policies. It is important that this is communicated to insureds. According to IRMI s Contractual Risk Transfer in Construction course ( there are three categories of indemnification: 1. Broad Form the indemnitor assumes liability for his own negligence and the indemnitee s contributory and sole negligence. Almost 90% of states prohibit or limit the transfer of liability for one s own negligence in construction contracts. Where permissible by law, broad form contracts may request additional insured status under a pre-2004 ISO form. 2. Intermediate Form the indemnitor assumes liability for his own negligence and the indemnitee s contributory negligence. Increasingly, this is the more common type of contract and one for which the 2004 (or later) ISO forms are suited. 3. Limited Form the indemnitor assumes liability only for his own negligence. Few contract initiators would ask for such limited indemnity that effectively comprises simple tort negligence. The IRMI course includes a chart showing which states permit transfer of sole negligence, joint negligence, or comparative negligence, and under what conditions. IRMI also points out that construction contracts often use antiquated terms such as Comprehensive General Liability Insurance, Manufacturers and Contractors (M&C) Liability Insurance, Owners, Landlords, and Tenants (OL&T) Insurance, Broad Form Comprehensive General Liability Endorsement (all in lieu of the current and correct Commercial General Liability Insurance, additional named insured, coinsured, crossliability endorsement (included in the current CGL Separation of Insureds clause), combined single limit (as opposed to per-occurrence, aggregate, and products-completed operations aggregate limits), and many others. 12

13 Agent Opinion Letters Certificate holders sometimes require the insured to ask the insured s agent for a letter attesting to the fact that in the opinion of the agent, the policy contains the required insurance coverages/indemnifications required by the contract with the insured. (The words in quotation marks are excerpted from an actual letter received by an agent on behalf of his insured.) In this instance, the certificate holder is demanding that the insured s agent warrant coverage to their benefit without exclusions, something that is impossible to do. Here are two other examples of certificate holders mandating that an agent warrant coverage on behalf of his or her client: The certificate of insurance should also indicate in the comments section that the insurance that has been obtained for the additional insured complies with the insurance requirements section of the lease or contract. Certificate must certify that Subcontractor will maintain completed operations coverage for the lesser of eight (8) years or the prescribed time of the state s statute of repose. As discussed later, the ACORD Forms Instruction Guide suggests that this NOT be done with a certificate of insurance and we recommend it not be done with an opinion letter. Needless to say, agents are sometimes asked to produce a certificate that cannot comply with the contract the insured has signed. Refusing to do so, agents are often faced with an assertion by the certificate holder that: 1. The agent s insured will be prohibited from performing work until an acceptable certificate is provided; 2. Payment to the agent s insured for work performed will be withheld until the certificate complies with the contract; 3. The insured will be held in default under the contract with various penalties applying; and/or 4. The certificate holder knows of agents who can or will provide such certificates. Obviously, failure to cave into these demands could mean the loss of an account for the agency. A client s contractual obligations can present several other problems for agents:

14 Reviewing Contracts for Insureds Business contracts can be very complicated. Construction contracts, in particular, can be huge and complex. When these agreements are reviewed by individuals who do not have the experience or qualifications to do so, it increases the likelihood of errors and thus exposure to liability. Contract language examples will be provided later. The following is a short article on this subject written by VU faculty member Mike Edwards of Edwards & Associates, reprinted with his permission: Reading Contracts for Insureds Guidelines and Sample Disclaimer As every E&O attorney knows, there are a sizeable number of E&O claims against agents that arise out of the agent trying to do a favor for an insured. That favor often involves reading or reviewing contracts signed by the contractor. Of course, other insureds sign contracts, such as lessors, lessees and others. Agents are caught in a Catch-22 when it comes to reviewing contracts signed by their insureds. To run from the task would call into question the agent s professional service. On the other hand, to tackle the project with no written guidelines or disclaimers could be disastrous for the agent and agency. The most common sense approach, and one that is recommended by many E&O attorneys, is the middle ground: review the contracts, but with ample caveats. Of primary importance is to state in writing that the agent is only reviewing the insurance requirements of the contract, and is not providing any sort of legal advice. In addition, such a disclaimer should be provided at least annually to insureds for which the agent frequently and routinely reviews contracts. For situations where a contract review is done only infrequently, it is recommended that the disclaimer be provided to the insured each time. Those who favor a conservative approach recommend using the written disclaimer each time a contract is reviewed, no matter how many contracts are reviewed for an insured each year. Below is a sample disclaimer letter for use when reviewing contracts for insureds. This disclaimer is provided solely for illustrative purposes, and any disclaimer actually used by an agency should be reviewed with the agency s legal counsel prior to actual use with an insured. Our Agency has, upon your request, reviewed the contract indicated above. Specifically, we reviewed only the insurance requirements contained in Section, Page. The scope of our review was to determine if the current insurance program which you have placed through our Agency addresses the types and amounts of insurance coverage referenced by the contract. We have identified the significant insurance obligations, and have attached a summary of the changes required in your current insurance program to meet the requirements of the contract. Upon your authorization, we will make the necessary changes in your insurance program. We will also be available to discuss any insurance requirements of the contract with your attorney, if desired. In performing this review, our Agency is not providing legal advice or a legal opinion concerning any portion of the contract. In addition, our Agency is not undertaking to identify all potential liabilities that may arise under this contract. This review is provided for your information, and should not be relied upon by third parties. Any descriptions of the insurance coverages are subject to the terms, conditions, exclusions, and other provisions of the policies and any applicable regulations, rating rules or plans. 14

15 Common Contractual Requirements and Issues In this section, we ll examine three of the most common contractual requirements: (1) primary and noncontributory coverage, (2) waivers of subrogation, and (3) notice of policy cancellation. Later we ll examine more specific contractual provisions found in many lease, loan and construction agreements. Primary and Noncontributory Many, if not most, contracts require that (sub)contractors or other parties provide coverage for the benefit of the indemnitee (for example, as an additional insured under a CGL policy) that is primary and noncontributory. Some parties will request this language on policies other than the CGL. Certificates with this language are issued daily by agents attesting that the referenced CGL (or other policies) meet(s) these requirements. However, is this really true? Primary. Here s what the ISO 2007 CGL policy says: 4. Other Insurance If other valid and collectible insurance is available to the insured for a loss we cover under Coverages A or B of this Coverage Part, our obligations are limited as follows: a. Primary Insurance This insurance is primary except when b. below applies. If this insurance is primary, our obligations are not affected unless any of the other insurance is also primary. Then, we will share with all that other insurance by the method described in c. below. b. Excess Insurance This insurance is excess over: (2) Any other primary insurance available to you 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 insured by attachment of an endorsement. Non-CGL Policies. Again, under current versions of the ISO CGL, primacy isn't a major issue, but it can be under non-iso or even non-cgl forms. For example, the 2006 ISO Business Auto Policy is primary only if the named insured owns the vehicle or assumes liability under contract (Condition 5, Other Insurance, subparagraph c.); otherwise the coverage is excess. As for noncontributory, the ISO BAP only mentions primary or excess it says nothing about being pro rata or applying in contribution with other forms. Noncontributory. However, does the ISO CGL policy respond on a "noncontributory" basis? The answer to that question depends on what the author of the contract meant by "noncontributory." If "noncontributory" means that the coverage is intended to be excess only, then the ISO CGL and additional insured endorsements pretty much take care of that, as pointed out above (excess policies may be problematic). For example, the following real-life contractual insurance requirement implies that noncontributory and excess are synonymous: The General Liability endorsement shall be at least as broad as Form CG edition. Each policy shall stipulate that the insurance afforded to the additional insureds shall apply as primary insurance and the any other insurance carried by the Contractor, the Owner, or the Lender, if any, or their directors, offices or employees will be excess only and will not contribute to the primary insurance. [emphasis added] 15

16 In other words, noncontributory, as an accepted and commonly used term in the construction industry means that the indemnitor s insurer (the one providing the AI coverage to an indemnitee) will not seek contribution for any other insurer (or at least any insurer of the AI). On the other hand, if it means that the insurance won't contribute, even on an excess basis, then you have a problem since the insured has contractually agreed that his or her CGL will be the sole source of recovery. In addition, the construction contract must be read carefully to determine if the primary and noncontributory requirement applies just to the CGL policy to which the AI endorsement is attached or also to excess liability policies or even non-general liability coverages like commercial auto. Some carriers use proprietary endorsements that define the term noncontributory. For example, one insurer s Amendment of Primary and Excess Provisions (Additional Insureds) modifies the CGL Other Insurance clause, including the addition of a definition: Non-contributory means that the other insurance available to the additional insured will apply as excess and will not contribute as primary to the insurance provided by this endorsement. Insurers sometimes will add a certificate holder as a CGL additional insured on a primary basis, but not on a noncontributory basis. As pointed out earlier with regard to business auto coverage, primary and excess are usually governed by vehicle ownership, so it s impossible to say unequivocally that coverage is even primary. As a general E&O rule, when language like this appears in a contract, it should never be added to a certificate. Wording of this type on a certificate of insurance has no force or effect whatsoever other than to create a potential E&O exposure for the agent/broker if the policy is not endorsed to provide the certified coverage. As discussed later in this program, such modifications of certificate wording may be illegal in some states, inappropriate as outlined in some agency/company agreements, or otherwise a very bad idea. Anytime a non-acord certificate is requested, the insurer needs to issue the certificate or otherwise authorize it. Waivers of Subrogation Contracts will often stipulate that the right of subrogation must be waived. The ACORD 25 includes an important disclaimer: If subrogation is waived, subject to the terms and conditions of the policy, certain policies may require an endorsement. A statement on this certificate does not confer rights to the certificate holder in lieu of such endorsement(s). The CGL only restricts waivers of subrogation after a loss. It does not restrict waiving subrogation before a loss (written, oral, or implied). Specifically, the policy language in the 2004 CGL says: Transfer Of Rights Of Recovery Against Others To Us If the insured has rights to recover all or part of any payment we have made under this Coverage Part, those rights are transferred to us. The insured must do nothing after loss to impair them. At our request, the insured will bring "suit" or transfer those rights to us and help us enforce them. In addition, it is generally accepted that insurers cannot subrogate against their own insureds except in rare instances such as intentional losses. Thus, additional insured status possibly grants some degree of insulation from subrogation after loss. However, to fully comply with some contractual requirements, it may be necessary to attach ISO form CG Waiver of Transfer of Rights of Recovery Against Others To Us. 16

17 If a contract requires a full waiver of subrogation, it is advisable that the agent not indicate compliance on the certificate of insurance unless authorized to do so in advance by the insurer based on policy language or state law (waivers are not legal in about 15% of states). In addition, some state statutes require the attachment of an endorsement even though the policy grants waivers prior to loss. For a much more detailed (3,000 words) article on waivers of subrogation, including a discussion of waivers in property, auto, and workers compensation, check out this article on the Virtual University: Waivers of Subrogation Notice of Cancellation A certificate holder will often request that notice be provided of cancellation. Typically the request is for 30 days (or more) notice. For example, here is some wording from a lease agreement: All policies of Tenant s Insurance shall contain endorsements that the insurer(s) shall give Landlord and its designees at least 30 days notice of any cancellation, termination, material change, or lapse of insurance. As a practical matter, most additional insured endorsements don t extend a right of notification of cancellation, much less a right of notification of a material change. If cancellation notice is essential, then in lieu of additional insured status, the party requesting the certificate could ask the insured to obtain an Owners & Contractors Protective (OCP) policy. However, one insurer offers a Designated Entity Earlier Notice of Cancellation/Nonrenewal Provided by Us endorsement. This endorsement provides for notice of cancellation, nonrenewal, or material limitation in coverages for a specified number of days in advance for any statutorily permitted reason other than nonpayment of premium. Endeavor To. There are other potential grounds for claims or suits against agents involving certificates other than purely contractual ones. For example, the ACORD certificates of insurance say that the issuing company will endeavor to provide notice of cancellation to the certificate holder: Should any of the above described policies be cancelled before the expiration date thereof, the issuing insurer will endeavor to mail days written notice to the certificate holder named to the left, but failure to do so shall impose no obligation or liability of any kind upon the insurer, its agents or representatives. Various dictionary definitions of endeavor include: to exert oneself to do or effect something; make an effort; strive. a strenuous effort; attempt. a conscientious or concerted effort toward an end; an earnest attempt. to attempt by employment or expenditure of effort. Clearly, endeavor means at least to try and probably to make a significant effort to do something. In the case of many or most insurers today, there is no intent to provide any notice of cancellation. Therefore, why should there by any indication on the certificate of cancellation notice when none is required by the policy nor otherwise intended by the insurer? It raises the question as to the ethics and professionalism of the party making such a statement not to mention their potential legal liability. 17

18 Certificate vs. Policy Limits Consider this very common situation: Your insured contractor has gotten a job where the insurance requirements include not less than $1,000,000 in CGL coverage. He has a $2,000,000 CGL occurrence limit. He doesn't want them to know that he has this much insurance, so he asks you to issue the certificate showing a $1,000,000 limit, the minimum required by the contract. So, what do you show on the certificate...$1,000,000 or $2,000,000? The ACORD 25 Certificate of Liability Insurance simply provides a place for a policy number and the limits associated with that policy. It does not address what a construction contract might say nor does it address the issue of minimum vs. actual limits. The ACORD Forms Instruction Guide says, Enter limits corresponding to those found on the policy declarations page. Therefore, it is clearly the intent of the ACORD certificate to show the actual policy limits, regardless of what the construction contract calls for. The construction contract, though, simply asks for proof that the contractor has at least a $1,000,000 limit of insurance. So, do you comply with the literal reading of the certificate (and ACORD instructions) and show the actual policy limits, perhaps providing more information that the insured would want the contracting party to know? Or, do you comply with the perceived spirit of the construction contract by only advising that the insured has the minimal limits required? While this may appear to some be a question of ethics or business practices, given that a number of states have adopted statutes or regulatory guidelines with regard to fraudulent certificates, and given the litigious environment in which we live, care should be taken to accurately reflect the limits of coverage in accordance with the instructions on the certificate and any other directions provided by the carrier. We ran this issue, from an ethical and business (i.e., non-legal) perspective, by the VU faculty and our VUpoint Newsletter readers and they were split exactly 50/50 on what the proper course of action should be. IIABA members and paid VU subscribers can read the article and review the survey responses here: Certificate vs. Policy Limits Surveys & Polls: Certificate vs. Policy Limits One other possible solution to this conundrum is how one carrier s AI endorsement addresses contractual limits requirements that are less than the policy limits of the indemnitor: We will not provide Limits of Insurance to any additional insured person or organization that exceed the lower of The Limits of Insurance you are required to provide in the written contract or written agreement. With this restrictive policy language, one might be able to, in good faith, show limits on the certificate that correspond with the contractual requirements. 18

19 Sample Contract Provisions To illustrate the nature of construction contracts and commercial leases, the following are examples of insurance and certificate provisions found in some contract. Construction Contracts While there are standardized construction contracts (e.g., AIA 201 and ConsensusDocs 200), many contracts are unique or a hodgepodge of various contractual provisions sometimes dating back decades. Here are several examples of relatively simple construction contract insurance requirements: Certificates of Insurance acceptable to Owner shall be filed with the Owner prior to commencement of the Work. These certificates and the Insurance policies required by this Paragraph shall contain provisions stating that the Owner shall be named as an Additional Insured thereunder and that the policies shall apply on a primary basis. Please provide the following language appropriately inserted in the insurance certificate block for Special Provisions as follows: Not withstanding the preprinted cancellation Provisions on this form, coverages afforded under the policies will not be cancelled, reduced in amount nor will any coverages be eliminated until at least thirty (30) days after mailing written notice, by certificate mail, return receipt requested, to the insured and the Owner, of such alteration or cancellation. We require a 30 day cancellation notice for any reason. This requirement can be met by crossing out the unacceptable wording on the certificate. Please cross out the following wording: endeavor to and but failure to mail such notice shall impose no obligation or liability of any kind upon the company, its agents or representatives. The general liability policy shall contain the following endorsements or language, which shall be indicated on the certificate of insurance: The employee and workers compensation related exclusions in the policy shall not apply with respect to claims related to railroad employees. The Worker s Compensation and Employer s Liability Policies shall contain Waivers of Subrogation in favor of Contractor, Owner and any other entity as may be required by the Contract Documents The Certificate of Insurance and policies for the Commercial General Liability and Business Automobile policies shall name Contractor and, if requested, Owner and Owner s agents, as Additional Insureds. Products-Completed Operations: This coverage must be maintained through the statute of limitations in the state where the work is being performed. Policies and/or endorsements cannot include any provisions that terminate products-completed operations coverage at the end of the policy period or limit this coverage in any other way with respect to the additional insured These coverages must be primary and non-contributory. Unfortunately, construction contracts can be far more complex and demanding, easily in excess of 200 pages. In addition, insurance requirements or, more accurately, risk transfer requirements, are not always found beneath a noticeable headline in the contract. Consider this all-too-common scenario: Your insured is bidding on a construction contract with a large, national builder. The contract includes an insurance addendum that requires that certain coverages, limits and terms be in place. Compliance would necessitate adding the builder as an additional insured, restructuring the coverages, and 19

20 even modifying the coverage forms themselves (or implying that the forms have been modified). The builder also wants major revisions to the certificate(s) of insurance. Of course, the current carrier refuses to do any of this. What do you do? The insured insists that, without these concessions, he will not get the job. You know that if you don't assist the insured in complying, you may lose the account to an agent who is willing and (allegedly) able to meet the builder's demands... sometimes, remarkably, with the same carrier who refused your request. Before we examine the issues and seek some solutions, let's go back to the start. Here's a list of some of the requirements in this construction contract insurance addendum for this builder, along with some commentary (Note: These are all real contract provisions.): The following additional insured endorsements must be added to the contractor's CGL policy (though it isn't clear which): CG ; or CG ; or CG (but only if modified to delete the word ongoing and insert the sentence Operations include ongoing and completed operations to track the 1985 versions). o CG Additional Insured Designated Person or Organization says, WHO IS AN INSURED (Section II) is amended to include as an insured the person or organization shown in the Schedule as an insured but only with respect to liability arising out of your operations or premises owned by or rented to you. o CG Additional Insured Owners, Lessees or Contractors (Form B) says, WHO IS AN INSURED (Section II) is amended to include as an insured the person or organization shown in the Schedule, but only with respect to liability arising out of 'your work' for that insured by or for you. o CG Additional Insured Owners, Lessees or Contractors (Form B) says, WHO IS AN INSURED (Section II) is amended to include as an insured the person or organization shown in the Schedule, but only with respect to liability arising out of your ongoing operations performed for that insured. The additional insureds are to include the builder entities (a partnership and corporation), the site owner, and all of their respective officers, directors, partners, members, and employees. The contract effectively requires that the contractor s CGL policy continue in force to cover the additional insureds for BI and PD that occurs after all work on the site has been completed. There is no specific termination date and, at the builder's request, the contractor must provide certified copies of all subsequent policies for at least five (5) years. The contract requires thirty (30) days notice by certified mail for cancellation, nonrenewal, and modification or reduction in coverage. It also mandates that the certificate of insurance be revised to delete the wording endeavor to and but failure to mail such notice shall impose no obligation or liability of any kind upon the company, its agents or representatives from the cancellation portion of the certificate. The contract, to the fullest extent permitted by law, also calls for the deletion of anything in the certificate of insurance that would imply that it does not confer rights to the insurance. The contract clarifies that coverage is not limited to vicarious liability and it prohibits any endorsement limiting coverage for ANY negligent acts, errors or omissions of the builder. 20

21 The contract forbids exclusionary language for things such as soil subsidence, earth movement, pollution, mold or fungus, EIFS, etc. If insurable by law, the policy must cover punitive damages, fines or penalties. The contractor must require (and provide proof of upon request) each subcontractor to comply with the insurance requirements of the contract and the sub must sign a hold harmless/indemnity agreement specified by the contract, naming the builder, owner, officers, etc. (not the contractor) as beneficiaries. A complete subrogation waiver is also required. Unless prohibited by the policy or law, the contract requires an assignment of the policy to additional insureds if the contractor is out of business or cannot be located. The contract makes the contractor's policy primary, which isn't unusual for additional insureds. This agreement is a good example of a risk manager and/or attorney gone amok (not from the builder s perspective, of course). The attempt here is to essentially remove all potentially insurable risk from the builder and place it on the shoulders of the contractors and subcontractors who typically have far fewer resources than the large corporations making these demands. The builder can, or can at least try to do this because of size and market clout. By passing along significant costs to contractors and the insurance industry, they keep their costs lower and make themselves even more competitive relative to other builders who don't require such onerous contracts. Commercial Lease Agreements Here is a sample of a very simple commercial building lease insurance requirement: Insurance required hereunder shall be in companies rated A+ or better in Best s Insurance Guide and shall be qualified to do business in the state in which the premises are located. The Tenant shall deliver to the Landlord copies of policies or certificates evidencing the existence and amounts of such insurance with loss payable clauses satisfactory to Landlord. No such policy shall be cancelable or subject to the reduction of coverage or other modification except after ten (10) days prior written notice to Landlord. Another example: Insurance. Lessee, at his expense, shall maintain plate glass and public liability insurance including bodily injury and property damage insuring Lessee and Lessor with minimum coverage as follows: Lessee shall provide Lessor with a Certificate of Insurance showing Lessor as additional insured. The Certificate shall provide for a ten-day written notice to Lessor in the event of cancellation or material change of coverage. To the maximum extent permitted by insurance policies which may be owned by Lessor or Lessee, Lessee and Lessor, for the benefit of each other, waive any and all rights of subrogation which might otherwise exist. Too often, agents will examine a lease for a tenant insured and begin and end with the insurance requirements. However, as a matter of liability and indemnity, there may be several other provisions in a commercial lease that require addressing, including Damage and Destruction clauses. It s therefore important that leases be reviewed in their entirety, preferably by the tenant s counsel who can then advise the agent of the insurance requirements. 21

22 The importance of a thorough review is reflected by the potential size of claims against tenants. VU faculty member, Jim Mahurin ( has reviewed hundreds of commercial leases and provides several large claim examples, followed by a short list of insurance requirements he s seen that are often overlooked or improperly responded to by agents: A law firm employee left a mop sink running over a three day weekend and flooded seven floors of an 18 story office building. The law firm occupied four of the floors and others were occupied by a bank. There was no waiver of subrogation. A plain vanilla retail tenant in 1,000 square feet of mall space is typically on the hook for $250,000 in uninsured interior improvements, i.e., improvements installed by a prior tenant but obligated for repair under the Damage & Destruction clause, plus no waiver of subrogation. It is not uncommon to find a small business tenant in a mall setting exposed for $500,000 or more. Agents often have several insured customers in the same mall. The business owners know one another. I have seen strip malls where all of the tenants, except the bar and lounge, were insured by the same agent from one of the low cost commercial package providers that typically employ captive agents whose expertise, if any, is in personal lines. Every tenant was underinsured by six figures. Owners too often base their insurance value on the cost of bare wall, bare floor, and unfinished ceiling construction. They are uninsured for millions in the form of interior finishing installed by prior tenants and don't know it. In the event of a loss, you have a desperate landlord out to recover any way they can. You can bet the ranch they will come after the agent. Here is the short list of sample commercial lease insurance requirements: 1. Tenant to insure fire and extended coverage, including vandalism and malicious mischief. NOTE; The waiver of subrogation is limited to insured losses. This leaves the tenant open for recovery by the landlord for other peril (notably water damage) losses. 2. Coverage to include peril of earth movement Coverage to include perils of earthquake and earth movement Coverage to include peril of subsidence Coverage to include flood and water damage...(included in requirement for business interruption) 6. Tenant to insure...the full insurable value Tenant to insure...the full market value Tenant to insure...the full replacement cost Tenant to insure the Actual Cash Value of the building for the full replacement thereof Tenant to insure the Actual Cash Value of replacement The obligation of the Landlord is limited to the building shell. Tenant at Tenant's expense shall promptly perform all repairs and restoration not required to be done by Landlord and shall promptly re-enter the demised premises and commence doing business in accordance with the provisions of this lease. 22

23 NOTE: Building shell is defined to mean the exterior walls without finishing on the building interior, and unfinished floor, and unfinished ceiling, and all utilities stubbed to an outer wall. 12. Tenant shall make...all non-structural ordinary and extraordinary, foreseen and unforeseen repairs and replacements to the demised premises, including, without limitation, repairs and replacements to the plumbing and sewage facilities within the demised premises or under the floor slab including free flow up to the main sewer line, electrical, heating, ventilating and air conditioning systems and escalators and elevators, if any, and mechanical systems and installations therein Tenant, at Tenant's sole cost and expense,, shall maintain all-risk insurance, with deductibles in an amount reasonably satisfactory to Landlord, protecting and indemnifying Tenant against any and all damage to or loss of any Alterations and lease hold improvements, including any made by Landlord to prepare the Premises for Tenant's occupancy, and Tenant's Property,. All said policies shall cover the full replacement value of all Alterations, leasehold improvements and Tenant's Property. 14. Tenant shall...include ground lessor as Additional Insured... Needless to say, a tenant cannot comply with most of these requirements by relying on the fire damage legal liability coverage of his or her CGL policy. Even the ISO CP Legal Liability coverage form won t work for the multitude of leases that make a tenant responsible for damages without regard to negligence or fault. Finally, beware of triple net leases! For several articles on the VU about triple net leases, go to the VU at and search for triple net. In addition to the above, Jim provided the following suggestions: An onerous lease is one that doesn't have a mutual waiver of subrogation. There are few of these where damage to occupied facilities won't bankrupt your insured. CGL and Auto exclude damage to property in your custody. That is onerous. Make sure you reference both CGL and Auto CCC exclusions. Ninety percent of experienced agents don't grasp the significance. Loss examples: a. A tenant's employee hit a support pillar with a vehicle causing collapse of a section of the roof in a large industrial building. The repair bill was $625,000 (in 1980). b. A tenant's delivery truck slid into rear wall of a shopping center during an ice storm causing extensive damage to (a) space occupied by the tenant, and (b) damage to adjoining units. All loss to (b) was paid under the liability portion while the Lessor's insurance carrier subrogated a six figure repair bill against the tenant. One of the things you need to tell your agents is to not send COI's [other than temporary] to landlords on triple net leases. Send a certified copy of the policy and invite the lessor to read the policy to make sure the coverage is satisfactory. The insurance requirements are often ambiguous. Since the lessor is often a named insured, they can pursue recovery from the agent. Separately, it's a great sales tool. Agents can pick up a lot of business by addressing the lessor interest well. 23

24 You would be surprised by the percentage of Katrina litigation involving failure of tenants to provide adequate insurance to protect the lessor. The lessors have sued the tenants and the tenants have sued the agents. In some, the lessor is pursuing recovery against the agent as a named insured. One case involves a demand for over $8,000,000. The uninsured damages - at a minimum - are seven figures. This is truly serious E&O business. An excellent treatise is the book Insuring the Lease Exposure by Harry Brooks and Don Malecki. I believe the latest edition is 1989, so some of the specifics are undoubtedly dated but the basic concepts haven t changed much. The book is available on Amazon. Commercial Loan Agreements Insurance requirements in small to mid-sized commercial property loan agreements have changed remarkably in recent years. An increasing percentage of loan documents impose lengthy requirements as to the terms and amounts of coverage. It is interesting to see insurance requirements on modest property loan documents today similar to requirements imposed in debt instruments involving tens of millions of dollars fifteen (15) years ago. The insurance industry s shift away from blanket property policies to specific schedules and the introduction of margin clauses into the blanket coverage format create some interesting situations. Again, according to consultant Jim Mahurin, here are 26 common lender requirements: 1. The first item is little changed. Typical language requires insurance against loss or damage to the Property by fire, windstorm and extended perils, and against loss or damage by such additional risks included in all-risk or special form insurance policies. The all-risk or special perils requirements are more recent. 2. Property insurance limits are to be not less than one hundred percent (100%) of the full replacement cost of the improvements. Please note the phrase one hundred percent (100%) of the full replacement cost This language becomes very important in the event of a total loss. 3. Replacement cost is often defined by the Lenders. One example reads, the cost of replacing all improvements without regard to depreciation, less the cost of excavations, foundations and footings below the lowest basement floor 4. The property to be insured is often defined to include improvements installed by the Owner (building shell) and interior finishing installed by Tenants. Many Owners insure buildings to the extent of original construction and impose obligations on Tenants to insure the interior finishing. Tenant compliance of often spotty, at best. This practice frequently results in Owner coverage being deficient by one-third (1/3), or more, of limits required by the Lender. 5. Many loan agreements stipulate replacement cost is to be determined by an appraisal obtained from a qualified party. The appraiser s qualifications may be referenced in the loan document. 6. Many require annual adjustments or inflation guard endorsements to keep the property insurance limits at the 100% level. 7. Ordinance or Law (O or L) coverage is required if the property is subject to non-conforming use. The minimum limit under Coverage A is to be equal to the replacement cost. Some stipulate this part is to equal the replacement cost with an Agreed Amount endorsement. Coverage B is to be sufficient to fully 24

25 fund demolition and disposal. The limit for Coverage C must address the cost of required upgrades. Determining limits for Coverage B and C are troublesome at best. How much of a building must be demolished? What is the cost of demolition and clean up? What are the haulage and tipping fees to dispose of building and personal property debris? These sums are frequently very large. Coverage C requires special attention because many carrier O or L endorsements do not increase the building limit. The O or L sub-limit may be adequate for a partial loss but the insured needs coverage for the replacement cost to rebuild and include the value of all legally required upgrades. Increased costs arising from code requirements may add fifty percent (50%), or more, to the cost of rebuilding. 8. The growth of LLCs and changing property ownership patterns have resulted in an increased number of buildings insured as single structures instead of blanket policies. Blanket property programs are less common and more specific property schedules are issued. Blanket property insurance subject to a Margin Clause creates a separate set of issues. These changes are material to property subject to loans. In the event of a total loss the Lenders may take the insurance proceeds instead of participating through the course of reconstruction. The Owner may be left with an unusable lot covered by debris. The Owner s share of property insurance recovery may be very small if any Property insurance provides Debris Removal coverage in an amount of twenty-five percent (25%) in addition to the amount of the loss. This provision does not apply if the loss is total. Property policies provide only nominal sums in addition to the limit applying to the building following a total loss. Lender insurance requirements seldom address Increased Debris Removal limits. The application of Lender procedures following a total loss makes this a critical coverage for the Owner. Debris Removal costs may be fifteen percent (15%), or more, of the replacement cost. If the building is located in confined space in urban areas the removal cost may be fifty percent (50%) or more. Agents working with property owners insuring individual buildings, owners insured under specific property schedules, Blanket property policies with Margin Clauses or blanket property accounts written on multiple buildings subject to one loss should take Increased Debris Removal exposure very seriously. 9. Loan agreements typically require coinsurance penalties to be removed. This requirement is not new. 10. Loans on accounts involved in technology, research & development, intellectual property, software and similar matters are to address insurance for intangible exposures as appropriate 11. Loans for property under construction may require coverage for one hundred percent (100%) of Soft Cost This is interesting from two perspectives. One, the Lender does not define Soft Cost. Secondly, insurance company coverage terms for Soft Cost differ. Soft Cost exposure is a significant percentage of construction hard cost. 12. Construction loans are specific as to requirements for coverage applying to property off site. 13. Addition or improvement to a building during the life of the loan requires the addition of Builders Risk or Course of Construction insurance reported to the Mortgagee. 14. Flood requirements are often very interesting. Requirements for NFIP coverage on property located in Special Flood Hazard Areas (SFHA) are usually spelled out but excess coverage is implied. Not only do you find specific requirements for property located in 100 and 500 year flood zones, some loan requirements address flood coverage for property in proximity to SFHA zones. This may require determining elevation differential and linear distance between SFHA and the lowest floor of the facility to 25

26 be insured, the height of an opposing embankments, etc. With over 30% of flood losses in the United States occurring outside SFHA zones the term in proximity to may require serious analysis. 15. Requirements for earthquake and sinkhole coverage are standard. A few lenders require coverage for earthquake and breakage of rock beneath the surface of the earth. 16. Business interruption is seldom permitted for less than twelve (12) months. This coverage is to be written at 100% of the business interruption exposure. Please note the term exposure is not related to coinsurance percentage. Coinsurance provisions typically aren t permitted. 17. Some lenders require business interruption for a period to allow demolition and reconstruction of the facility. Other loans require business interruption for eighteen (18) or twenty-four (24) months. Common wording is during a period of not less than twelve (12) months. Careful attention should be paid to time requirements for building demolition, design, permitting, bid letting, repair or reconstruction. 18. Specific requirements for Extended Periods of Indemnity are less common. However, some Lenders refer to period of interruption to mean resumption of operations at the previous level. 19. Extra expense is rarely addressed in the loan requirements, but long term reconstruction and business startup periods make this topic an important issue. 20. Some Lenders stipulate business interruption coverage to include monthly payment of principal and interest. Please note the requirement for principal and the terms of coverage for your insured. 21. Lender s Loss Payable endorsements are commonly required on business interruption coverage. 22. Coverage for an Increased Period of Restoration may be required in the business interruption program to address delays caused by code upgrades. 23. Boiler & Machinery coverage may require a Mortgagee clause. 24. Many Lenders require Additional Insured status under Commercial General Liability and Commercial Automobile policies. 25. Workers Compensation and Employers Liability is required by many Lenders. 26. The Lenders may participate in negotiating any insurance claims and is authorized to adjust any loss covered by insurance. The insured may be ordered to provide the Lender with authorization to permit their participation in negotiating the loss. Agents should request copies of insurance requirements from loan agreements on property accounts. It is important for the insured to be in compliance. Property owners appreciate information about these issues. It is an opportunity to sell additional coverage. The section was taken from the following VU article: Insurance Requirements in Commercial Property Loan Agreements 26

27 Contractual Liability vs. Additional Insured Status This issue is discussed because it involves a question that has been submitted to our Virtual University Ask an Expert service several times in the past year and involves a subject often misunderstood. Here is the most recent inquiry: "My question has to do with additional insureds. I have had discussions with agents who believe that the wording in the ISO CGL policy pertaining to an insured contract covers the requirement to add additional insured status to a policy when required in the sub-contract agreement. They attach a copy of that wording in place of the additional insured endorsement. I feel this is a real stretch. I would look forward to your thoughts." Saying that equating contractual liability coverage to additional insured status is a stretch is an understatement. Clearly, these agents do not understand the difference between an indemnitee and an additional insured. Anyone not providing true additional insured status via endorsement could be opened up to a potentially significant E&O exposure. The 2004 CGL insured contract definition cited below does not give additional insured status to the non insured contracting party involved. What it does is create the undefined status of uninsured indemnitee for the individual that is being held harmless by the named insured in the insured contract, but has not been added as an additional insured. Insured contract means: That part of any other contract or agreement pertaining to your business (including an indemnification of a municipality in connection with work performed for a municipality) under which you assume the tort liability of another party to pay for bodily injury or property damage to a third person or organization. Tort liability means a liability that would be imposed by law in the absence of any contract or agreement... The most obvious problem of relying on this provision rather than actual additional insured status involves defense costs. All insureds under the CGL have their defense costs outside limits. Most often the uninsured indemnitee has his or her defense costs inside limits. Since the 1996 edition of the CGL, it has stated as much under Coverage A, exclusion 2.b. Contractual Liability, subparagraph (2): Solely for the purposes of liability assumed in an insured contract, reasonable attorney fees and necessary litigation expenses incurred by or for a party other than an insured are deemed to be damages because of bodily injury or property damage... However, whether defense costs are outside policy limits is governed by the CGL Supplementary Payments Coverages A and B, Item 2. The policy will only provide a defense for an indemnitee for an amount outside policy limits only if all of the conditions in this section are met. They are summarized by IRMI in their CRIS Contractual Risk Transfer in Construction course ( as follows: a. The insured contractor has specifically agreed in an insured contract to assume the liability on which the suit is based, including the indemnitee s defense costs. b. The liability for bodily injury and property damage assumed by the insured in the hold harmless agreement must be of a kind covered by the policy. c. The contractor and its indemnitee are both named in the suit. 27

28 d. There is no apparent conflict of interests between the contractor and its indemnitee. e. The request for a defense is made by both the insured and the indemnitee, and both parties consent to the assignment of the same counsel to defend both parties. f. The indemnitee agrees in writing to cooperate with the insurer in defending the suit (just as the insured agrees to do in the policy s basic conditions) and to provide records and documents related to the suit. The indemnitee must agree to notify any other insurer whose policy may be triggered by this claim and to cooperate in coordinating such other coverage. The problem this presents is that it is unlikely that all of these conditions can be met. The second part of Item f. presents a problem because it conflicts with the typical primary and noncontributory provision the indemnitor is requiring. This latter point demonstrates why agents must be very careful to avoiding warranting that coverage is primary and noncontributory in the absence of additional insured status. If the indemnitee cannot meet all of the above conditions, it must provide its own defense and seek reimbursement within limits of the costs it has incurred. For a much more detailed discussion on this subject, check out this VU article: Contractual Liability vs. Additional Insured Status 28

29 Additional Insured Issues As we just saw, because contractual liability coverage has so many potential limitations, not the least of which is the typical absence of defense outside limits, it is common to request additional insured status, using contractual liability coverage, if any, as a fallback. Another reason, with regard to indemnity agreements, is that many states have anti-indemnity statutes that restrict the transfer of sole negligence but make an exception for transfer via insurance contract. Only about 20% of states permit the transfer of sole negligence in a construction contract. Even so, under the 2004 ISO AI endorsements, all it takes is 1% fault on the part of the named insured to trigger coverage for the additional insured. ISO CGL Endorsements The following ISO endorsements are the most common ones found in construction and real estate situations: CG Additional Insured Owners, Lessees or Contractors Scheduled Person or Organization The current version of this endorsement covers BI, PD, or PI/AI arising from the named insured s premises and operations. The CG edition covered both ongoing and completed operations, as well as the sole negligence of the additional insured if permitted by law. Completed operations coverage was removed from this form with the CG edition and continued as such with the CG , CG , and CG editions. For an article related to this, go to: Completed Operations and the CG In addition, coverage for the sole negligence of AIs was removed with the 2004 edition. For a discussion of the 2004 changes, review this VU article: ISO s New Additional Insured Endorsements CG Additional Insured Owners, Lessees or Contractors Automatic Status When Required in Construction Agreement With You This is a blanket additional insured endorsement that ISO introduced in Coverage is essentially the same as the CG It requires a written contract or agreement in order to trigger coverage. When uncovered claims (and potentially E&O claims) arise under this form, it is often because the insured has entered into an oral agreement, so it s important the insured be aware of this requirement. This endorsement may be preferable to the CG because it saves considerable time and money over issuing individual certificates and it does not require a specific person/entity be identified. On the other hand, this form may be inferior in at least a couple of ways. First, as IRMI points out in their CRIS Contractual Risk Transfer in Construction course ( Unlike CG 20 10, however, the standard blanket endorsement provides not only that no coverage applies to losses that occur after the work is completed, but that additional insured status ends when the contractor s operations for the additional insured are completed. This last statement can be read as eliminating coverage for a loss that occurs while operations are in progress but that results in a claim against the additional insured after operations are completed. (At that point, the additional insured is no longer an insured under the policy and presumably has no standing to submit the claim to the insurer.) 29

30 Second, the endorsement only covers ongoing operations and the CG was not designed to work with the CG This problem is discussed below. CG Additional Insured Owners, Lessees or Contractors Completed Operations The endorsement complements the CG by providing completed operations coverage and was introduced in 1993 when P/CO coverage was removed from the CG The CG does not work well with the CG because the CG requires a schedule of additional insureds and listing of locations and descriptions of completed operations. Unless an insurer will allow an omnibus insured statement in the schedule of AIs, the form simply does not work for blanket coverage. Many insurers who offer a proprietary blanket AI endorsement include both prem/op and completed ops coverages in their form. Notice of Cancellation. A significant omission to note in all ISO additional insured endorsements is that NONE of them provide for notice of cancellation. In fact, under ISO Commercial Package Policy not even all named insureds are entitled to cancellation or nonrenewal notice only the First Named Insured. Non-ISO CGL Endorsements Many insurers, particularly those catering to the construction industry have developed their own proprietary additional insured endorsements (IRMI says they have over 200 sample forms in their files). In some ways they may superior to ISO forms. For example, many include both ongoing and completed operations in one form. In other ways they may be inferior to ISO forms (depending on your definition of inferior and on which side of the indemnification agreement you lie on). For example, one carrier s AI endorsement says: We will not extend any insurance coverage to any additional insured person or organization That is any broader coverage than you are required to provide to the additional insured person or organization in the written contract or written agreement. We will not provide Limits of Insurance to any additional insured person or organization that exceed the lower of The Limits of Insurance you are required to provide in the written contract or written agreement. The form also incorporates a professional liability exclusion. ISO forms do not tie coverage or limits to the contract for additional insureds nor do they include a professional liability exclusion. Business Auto ISO s CA Designated Insured endorsement designates a person or entity listed on the endorsement as an insured but only to the extent they re already an insured under the Who Is An Insured provision. For an article on BAP additional insureds, go to: The BAP and Additional Insureds 30

31 Workers Compensation and Employers Liability No insurer is going to make a GC an AI on a workers compensation policy because they would be picking up the GC s entire payroll exposure for no premium. Some contractors are beginning to ask for Alternate Employer coverage on the sub s policy. Additional Insured vs. OCP Coverage Like most anything, there are advantages and disadvantages of additional insured status. For a discussion of this, check out this VU article: Additional Insureds vs. Additional Named Insureds Owners and general contractors have at least four ways, short of a wrap-up, of protecting themselves for claims against them which arise out of an independent contractor s actions: 1. Require an indemnity agreement (that hopefully has some measure of recovery under the independent contractor s CGL policy. 2. Rely on their own CGL policy. 3. Be named as an additional insured under the independent contractor s CGL. 4. Require the independent contractor to furnish an OCP policy. Let's take a quick review of each of these options, then focus on the OCP. Hold Harmless Agreements. While a hold harmless agreement is a good idea, it isn't sufficient by itself unless it is certain that the contractor has the financial resources (or contractual liability coverage) to pay any and all claims against the owner for which the contractor is liable. Owner's CGL. Sole reliance on the owner's own CGL, if the owner is using a significant number of contractors, may quickly result in a depletion of the aggregate limits, although it does potentially give the owner greater control over his/her defense. Additional Insured Status. Complete reliance on coverage as an additional insured under someone else's policy is rarely a good risk management decision. For another look at additional insured issues, check out this article in our research library: CGL Additional Insureds A Risky Business While being an additional insured is generally better than NOT being one, it should not be the sole means of risk transfer. You are at the mercy of the other party to maintain the insurance in force and at adequate limits, and their aggregate limit could be depleted without the owner's knowledge. An OCP is one alternative to a per-project aggregate limit endorsement such as the ISO CG OCP Coverage. The Owners and Contractors Protective (OCP) policy is superior in some ways to just naming 31

32 the owner as an additional insured, but inferior in a number of other ways. Given that some of the downsides of the form are significant, along with the cost, OCPs are not often used in the construction business. The OCP policy is usually purchased by the contractor, with the owner being the named insured. An advantage to both parties is that claims covered by the OCP should not reflect on their respective CGL loss experience. One downside of the OCP (from the contractor's standpoint) is that there is obviously an additional premium (though often quite affordable) that he/she has to pay to benefit the owner as named insured. The benefit is that the named insured has a whole new set of limits to draw on...and those limits are PRIMARY over any other coverage the owner has. The OCP clearly states that it is primary to any other coverage available to the named insured...that's not necessarily true if they only have additional insured status. Another downside for the contractor is that he is not an insured under the OCP, so the OCP insurer (from which the contractor bought the policy) can subrogate against him. Therefore, when purchasing the OCP, the contractor should make sure the CG waiver of subrogation endorsement for the OCP is attached. The OCP coverage itself is similar to being an additional insured, though coverage under the OCP is not quite as broad as the CGL, and OCP coverage only applies if the named insured is held vicariously liable for loss arising out of the acts of the designated contractor. The OCP does not include products/completed operations coverage...once the work ends, the insurance ends under an OCP. Also, the OCP doesn't include personal injury coverage, if that's an issue. As an additional insured, the client would not be entitled to notice of cancellation; as the named insured on an OCP, they would. That could be of critical importance. Keep in mind that the above discussion assumes "ISO standard" coverage forms...many insurance companies may use their own versions of these forms and/or may manuscript them, particularly additional insured endorsements. Beware of some of these proprietary AI forms, particularly if they include defense within limits. The above information was excerpted from the following VU article: Insuring the Independent Contractor Exposure In addition, IRMI s CRIS Contractual Risk Transfer in Construction course ( includes an excellent chart comparing the OCP to additional insured status. 32

33 Policy Processing Forms and Issues This section focuses primarily on issues involving ACORD forms; however, the importance of taking care when approached with non-acord forms is critical, as is the issue of copyright violations outlined below. ACORD Forms In this section, we ll take a brief look at the history of certificates, then examine more closely the four most commonly used ACORD certificate and evidence of insurance forms. History of Certificates Until 1976, certificates of insurance were either manuscripted or provided as proprietary forms by various insurers. ACORD ( Association for Cooperative Operations Research and Development ) introduced the first standardized certificate form in In 1995, it developed separate certificates for property (ACORD 24) and liability (ACORD 25) coverages. In addition, ACORD also maintains evidence of property insurance forms for both personal (ACORD 27) and commercial (ACORD 28) coverages. Until recently, these evidences of insurance did not contain all of the disclaimers found in the certificates of insurance. In 2003, ISO introduced its own certificate of commercial liability insurance and continues to maintain and develop a portfolio of processing forms in addition to its hundreds of advisory policy forms. While no one seems to know for sure, it is estimated that between 25 and 100 million certificates and evidences of insurance forms are issued annually. General Information All agencies using ACORD forms should subscribe to the ACORD Agency Advantage program which provides access to all ACORD forms, including fillable forms, as well as the ACORD Forms Instruction Guide which explains how to complete each field in their forms. For more information, go to: ACORD Advantage Program The ACORD Forms Instruction Guide states the following about certificates: Agents or brokers should not change any provisions on this form without prior consent of the issuing company. The ACORD Certificate should be issued only in compliance with company instructions. ACORD recommends that the Certificate NOT be used in the following situations: to waive rights; to quote wording from a contract; to attach to an endorsement; to quote any wording which amends a policy unless the policy itself has been amended. 33

34 Agents should not modify ACORD forms for several reasons, including: The ISO Commercial Package Policy s Common Policy Conditions (IL 00 17), under Item B. Changes, says, This policy s terms can be amended or waived only by endorsement by us and made a part of the policy. Unfortunately, far too often, certificates ARE used in an attempt to effect the terms of business contracts by implying that policy coverages or conditions exist that actually do not. Below are the ACORD certificate and evidence forms most often used and some of the issues involved in their use. ACORD 24 Certificate of Property Insurance Key wording: THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW. THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED, NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN. THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES. LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS. SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION DATE THEREOF, THE ISSUING COMPANY WILL ENDEAVOR TO MAIL DAYS WRITTEN NOTICE TO THE CERTIFICATE HOLDER NAMED TO THE LEFT, BUT FAILURE TO MAIL SUCH NOTICE SHALL IMPOSE NO OBLIGATION OR LIABILITY OF ANY KIND UPON THE COMPANY, ITS AGENTS OR REPRESENTATIVES. ACORD 25 Certificate of Liability Insurance The three paragraphs previously excerpted from the ACORD 24 are the same as those in the ACORD 25 except that the THIS IS TO CERTIFY THAT introductory wording of the second paragraph above is missing in the ACORD 25. In addition, the ACORD 25 provides a second page that contains two provisions not found in the ACORD 24. The first provision states, in two paragraphs: IMPORTANT If the certificate holder is an ADDITIONAL INSURED, the policy(ies) must be endorsed. A statement on this certificate does not confer rights to the certificate holder in lieu of such endorsement(s). 34

35 If SUBROGATION IS WAIVED, subject to the forms and conditions of the policy, certain policies may require an endorsement. A statement on this certificate does not confer rights to the certificate holder in lieu of such endorsement(s). DISCLAIMER The Certificate of Insurance on the reverse side of this form does not constitute a contract between the issuing insurer(s), authorized representative or producer, and the certificate holder, nor does it affirmatively or negatively amend, extend or alter the coverage afforded by the policies listed thereon. According to the ACORD Forms Instruction Guide, [V]irtually every other state [that does not require the filing of certificates] will not allow any change in a certificate of insurance that would attempt to modify a policy unless the revised certificate is filed and approved. Finally, at least one other provision on this form presents significant problems for agents and that s the overly broad information block titled, description of operations/locations/vehicles/exclusions added by endorsement/special provisions. The ACORD Forms Instruction Guide provides the following explanation: Description of Operations/Locations/Vehicles/Exclusions Added by Endorsement/Special Provisions 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. ACORD 27 Evidence of Property Insurance Prior to July 2006, the ACORD 27 and ACORD 28, unlike the ACORD 24 and ACORD 25, did convey certain rights to the holder, including notice of cancellation. This changed with the 2006 editions of each evidence of insurance form, as outlined in the Virtual University newsletter, The VUpoint ( Specifically, the prior edition of the ACORD 27 provided broader coverage and conditions than the new edition. The form now tracks the ACORD 24, Certificate of Property Insurance form by saying it doesn't change the terms and conditions of the policy and the will endeavor to language with regard to notice of cancellation. The prior version said the policy was in force and that notice of cancellation WILL be sent. This lead-in language was in the 1995 edition of the ACORD 27: THIS IS EVIDENCE THAT INSURANCE AS IDENTIFIED BELOW HAS BEEN ISSUED, IS IN FORCE, AND CONVEYS ALL THE RIGHTS AND PRIVILEGES AFFORDED UNDER THE POLICY. The language in the 2006 edition of the ACORD 27 now tracks that in the ACORD 24 and ACORD 25 and reads: 35

36 THIS EVIDENCE OF PROPERTY INSURANCE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE ADDITIONAL INTEREST NAMED BELOW. THIS EVIDENCE OF PROPERTY INSURANCE DOES NOT AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW. The following language is new to the 2006 ACORD 27 form and is virtually identical to that in the ACORD 25: THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED, NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS EVIDENCE OF INSURANCE MAY BE ISSUED OR MAY PERTAIN. THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES. LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS. This is the cancellation language of the 1995 ACORD 27 form: THE POLICY IS SUBJECT TO THE PREMIUMS, FORMS, AND RULES IN EFFECT FOR EACH POLICY PERIOD. SHOULD THE POLICY BE TERMINATED, THE COMPANY WILL GIVE THE ADDITIONAL INTEREST IDENTIFIED BELOW DAYS WRITTEN NOTICE, AND WILL SEND NOTIFICATION OF ANY CHANGES TO THE POLICY THAT WOULD AFFECT THAT INTEREST, IN ACCORDANCE WITH THE POLICY PROVISIONS OR AS REQUIRED BY LAW. This is the cancellation language of the 2006 ACORD 27 form which is almost identical to that in the certificates: SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION DATE THEREOF, THE ISSUING INSURER WILL ENDEAVOR TO MAIL DAYS WRITTEN NOTICE TO THE ADDITIONAL INTEREST NAMED BELOW, BUT FAILURE TO MAIL SUCH NOTICE SHALL IMPOSE NO OBLIGATION OR LIABILITY OF ANY KIND UPON THE INSURER, ITS AGENTS OR REPRESENTATIVES. ACORD 28 Evidence of Commercial Property Insurance For all practical purposes, the 2006 changes in the ACORD 28 mirror those in the ACORD 27. Likewise, the ACORD 28 can be used as evidence of physical damage coverage for loss payees under a commercial auto loan. (If the vehicle is leased, the ACORD 23, Leased Auto Certificate of Insurance, can be provided to the owner or lender rather than the ACORD 28.) The ACORD 28 form is typically used when a third party has a verifiable insurable interest in the property insured by a commercial property or inland marine policy. These interests range from commercial real estate mortgages to contractors mobile equipment purchases and leases. Evidences of Insurance and Lenders On July 28, 2006, the ACORD 27 - Evidence of Property Insurance and ACORD 28 - Evidence of Commercial Property Insurance were released. Both forms were revised as required by vote of the ACORD Forms Standards Subcommittee. The forms now track the ACORD 24 - Certificate of Property Insurance form by saying they don't change the terms and conditions of the policy and the "will endeavor" language with regard to notice of cancellation is now included. 36

37 Subsequently, several lenders announced that they found the current ACORD 28 (2006/07) form unacceptable based on the disclaimer changes made to the form in July. Many of these lenders began to require either the previous ACORD 28 (2003/10) form, an ACORD 75 insurance binder, or a duplicate original insurance policy as evidence of insurance. As a result, insurance industry representatives and lenders began to meet weekly via teleconference as part of an ACORD Working Group. For more information, check out this article: Certificates of Insurance and Lenders Copyright Issues All ACORD forms are copyrighted by the ACORD Corporation (Association for Cooperative Operations Research and Development) and filed with the U.S. Copyright Office. Therefore, anyone using ACORD forms without permission and/or outside a license agreement with ACORD may be subject to statutory copyright violations. In fact, under 17 U.S.C. section 504(c), the copyright holder may be able to recover statutory damages, even without proving other financial loss, in an amount ranging from $200 to $150,000, depending on several factors, including willfulness. The ACORD Forms Instruction Guide indicates that some states require that certificates be filed with the state department of insurance (see Statutes and Regulations section of this document). The Guide advises, In these states, the text of ACORD s certificates cannot be modified, unless the modified form is filed for approval by the respective state Departments of Insurance. Even where certificates are not required by law to be filed, according to Joel Volker of ACORD, ACORD vigorously pursues copyright violators anytime we are made aware of knockoffs or similar violations. This has been a constant task for at least twenty years. While agents are advised not to issue non-acord forms without express insurer permission, they should be especially vigilant about not using certificates that they know represent clear violations of federal copyright law and agents should not themselves modify copyrighted ACORD certificates by deleting or adding language outside the obvious informational fields that must be completed. Non-ACORD Forms, Agency/Company Agreements, and E&S Markets All non-acord forms should be referred to the carrier for at least four reasons:

38 While agents have authority to issue ACORD certificates of insurance, the carrier may not have given them authority to issue other ACORD forms nor any non-acord forms. For example, one carrier s agreement states: Your Business Authority and Commission Schedule from XYZ Insurance Company gives you the authority to issue standard and unaltered ACORD Certificates of Insurance for your business customers. Only the following forms may be used: ACORD Certificate of Property Insurance (ACORD Form 24) and ACORD Certificate of Liability Insurance (ACORD Form 25). You do not need to send standard and unaltered ACORD Forms 24 and 25 to us. You can simply issue the certificate and record the name of the holder and basic information in your log. Increasingly, agents are availing themselves of the E&S marketplace in order to meet contractual guidelines. For example, some third parties may insist upon additional insured endorsements that are over twenty years old that standard companies can no longer offer. However, these forms may be available from E&S markets. In most instances, the retail agent may not have authority to issue certificates on behalf of surplus lines carriers. In fact, many E&S brokers themselves don t have this authority. In such cases, the agent must request the certificate from the insurer or surplus lines broker. In at least one state, and possibly others, agents should not sign certificates of insurance or other documents evidencing coverage by an approved surplus lines insurer unless the agent holds a surplus lines license. Agency Certificate Procedures VU faculty member and agency consultant, Judi Newman, conducted a survey of her clients three years ago. The following is the question she posed and a sampling of the responses. I am looking for some input from you, please. This relates to an operational issue that I am sure many agencies face. I recently reviewed an agency that issues a fair number of certificates of insurance. In reviewing the processes I found that about 75% of the requests for certificates included something that needed the okay of the underwriter or even an endorsement to the policy and, in many cases, these are money bearing endorsements. My questions are two-fold. First, is this true in most agencies? Second, many of the contractors have contracts or agreements that they send to the agency for an interpretation on what is required on the certificate of insurance. Do most agencies have the producer review the contract or the CSRs? So, what does your agency do? Do you have formal, written certificate procedures? Is there quality control to ensure compliance? Based on the authority granted in the agency/company agreement, and incorporating sound E&O principles, it may be worth considering inclusion of explicit certificate-handling procedures in the agency procedures manual. These procedures can be communicated to agency staff members, with follow-ups for any changes in forms or authority. Note: Many procedural issues are raised by this program. The best source of guidance for agency procedures with regard to dealing with requests for certificates and evidences of insurance and their processing is the Best Practices for Certificates of Insurance published by the Independent Insurance Agents of Texas and available on the VU at: 38

39 Sending Certificates to Insurers An insurer recently sent its agency force a "Good News!" bulletin advising that it was no longer necessary to send it copies of most certificates of insurance. The bulletin also pointed out that it was the responsibility of the agent to notify the certificate holder of cancellation. This is a short-sighted approach since certificates can reveal a lot about an account to an underwriter the carrier should relish the opportunity to support the underwriting file with this information. In addition, since the ACORD certificate, where permissible, says that the insurer will endeavor to provide notice of cancellation, how can the insurer endeavor to do something it s not aware of? So, what should agencies do when told by a carrier not to send copies of certificates? For more information on this issue, including the citation of a court case where an insurer attempted to sidestep an E&O claim on the basis that it never got a copy of the certificate, check out these articles: Should Agents Send Certificates to Insurers? Following Up on Certificates of Insurance Certificates of Insurance: Will You Endeavor To Be Ethical? Charging Fees for Certificates Our Texas association provides the following fee schedule. Its applicability depends on whether agents can charge fees in addition to commissions in your state. For additional information, including several considerations and caveats for using a similar system, be sure to review the Independent Insurance Agents of Texas Best Practices for Certificates of Insurance at: 39