Additional Insureds & Certificates of Insurance

Transcription

1 Additional Insureds & Certificates of Insurance Welcome Insurance and risk professionals today need learning choices from many sources. As time and economic pressures bear down on everyone, The National Alliance continues to push forward with excellent online programs, carefully designed to fulfill your professional development needs. In the pages that follow, be sure to read and understand the requirements for completing your course. If you have any questions, you may contact us via the link on the bottom navigation bar. I hope you enjoy your journey into online learning. Thank you for choosing a National Alliance online course! William T. Hold, Ph.D., CIC, CPCU, CLU President About the William T. Hold Seminars OnLine Our promise of a distinctive learning experience. Named in honor of William T. Hold, Ph.D., CIC, CPCU, CLU, and President of The National Alliance for Insurance Education & Research, these seminars formerly known as Advanced Learning Seminars (ALS) are innovative courses developed especially for CSRs, Account Managers/Executives, new producers, and anyone wanting targeted insurance education. They are unique, in-depth learning opportunities for insurance professionals who have earned the CISR, CSRM, CIC, or CRM designations. Internet Browser Warning This course is designed to work with Microsoft Internet Explorer 6.0 or above, with JavaScript enabled. Students using Firefox or Google Chrome will have difficulties with interactive pages and self quizzes. If you need technical help with your browser, please contact the OnLine Help Desk. Copyright The Society of Certified Insurance Service Representatives, Incorporated. All rights reserved. This material includes copyrighted material of ISO Properties, Inc. with its permission. This course or any part thereof may not be reproduced, copied, republished, uploaded, posted, transmitted, or distributed in any form or by any means or stored in any information retrieval system without the express written consent of The National Alliance for Insurance Education & Research and the Society of CISR. All trademarks and service marks are proprietary to the Society of CISR, or its affiliates or licensees.

2 Welcome It s 4:55 on Friday afternoon. You are a customer service representative working with commercial lines clients. Hi Mr. Casey! No, we aren t closed yet, how may I help you? Yes, I can help you with a certificate of insurance. Additional insured status for the bank, 90 days notice, The attorney is ing a form and questionnaire now You d like it by 6pm? Processing certificates is not a rookie task. Have you ever found yourself in this position? How to Receive Credit This course is designed to fulfill 4 hours of the annual (8 hour) update requirement for persons holding the CISR or CSRM designations. Additionally, you may use this course to earn continuing education credits/hours (CE) towards your state insurance license renewal. Note: The requirements for receiving CISR or CSRM update credit are not the same as the requirements for receiving state CE credit. If you are updating your CISR or CSRM designation only: Complete each of the self quizzes and the review test with a score of 70% or higher for each. Multiple attempts are allowed for the review test. A proctor/monitor is not required when completing the review test. An affidavit of exam is not required after passing the review test. If you also plan to request credit/hours for state insurance license renewal: Complete each of the self quizzes and the review test with a score of 70% or higher. Then, complete the proctored final exam with a score of 70% or higher. Three attempts are allowed for the final exam. A proctor/monitor is required when completing the final exam. An affidavit of exam is required in order to receive credit for passing the final exam. Addtl Insureds & Certificates Rev. 02/10 Page 2

3 Taking the Review Test for Designation Update Credit The review test is a randomized test with 20 questions, designed to let you know how well you have understood the course material. Multiple attempts are allowed for the self quizzes and review test. You must pass all self quizzes and the review test before taking the final exam. You may navigate to the Review Test and Final Exam area by clicking on the Course Status link above. The link to the review test will become available when all self quizzes show a score of 70 or above. When you have passed the review test, your CISR record will reflect 4 hours of credit towards your annual designation update. The review test alone does not earn continuing education credit for state license renewal. Final Exam For State Continuing Education Credit The final exam for state continuing education credit is a randomized test comprised of 50 multiple choice questions worth 2 points each. It is designed to test your ability to apply what you have learned in the course. Three attempts are allowed for Hold Seminar OnLine final exams. Navigating to the Final Exam To link to the final exam, click on course status link on the top menu bar (above). If all of your self quizzes show a score of 70% or above, the link to the Review Test and Final Exam area will display Click on the link to the Review Test and Final Exam area. Click on the start review test link to complete your review test. When you review test shows 70% or above, the link to the final exam log in page will display. Addtl Insureds & Certificates Rev. 02/10 Page 3

4 Taking the Final Exam Your proctor/monitor must be present when you link to the final exam log in page. The proctor/monitor will enter his or her address twice in the fiends provided. A form will display allowing the proctor/monitor to either update his or her address information, or enter it for the first time. After submitting this form, the proctor will enter the start time for the exam and click on submit. The first question will display for the student and the exam clock will begin. The exam is times for one hour, calculators are permitted. The student may mark a question for review and return to it before submitting the entire exam. Grading and Certification Submit the exam for grading. The exam score will show immediately along with a list of the topics in which the student answered questions incorrectly. A copy of the score page will be sent via to the address on record and to the National Alliance. The score will post to the student s permanent record, but is not certified until an Affidavit of Exam and Continuing Education Request Form is received by the National Alliance. For successful exams, complete the Affidavit of Exam and follow the instructions on the cover page. An affidavit reminder will be sent to the address on record on the day after a successful exam. Students are not allowed to see their test questions or answers after grading. Addtl Insureds & Certificates Rev. 02/10 Page 4

5 Affidavit of Exam and Continuing Education Request Form The final exam lasts one hour, and must be completed in the presence of a disinterested thirdparty proctor/monitor. Three attempts at the final exam are allowed, and a passing score is 70% or higher. You and/or your proctor are responsible for submitting the Affidavit of Exam and Continuing Education Request Form to The National Alliance. (In New York, the state approved monitor is required to fax/mail the Affidavit of Exam and Continuing Education Request Form.) Fax the Affidavit of Exam and Continuing Education Request Form to the fax number printed on the cover sheet. Please send the original affidavit by mail (address also printed on the affidavit cover sheet.) We strongly recommend that you keep a copy for your records. Some students will have no need to request Continuing Education credits for an insurance license, and wish only to earn update hours for the designation. Please send the CE Request Form even if you are not requesting CE hours/credits for insurance license renewal. Check off the "No CE" box at the bottom of the form. Note: You will receive an reminding you to send in the affidavit if you pass your exam with a score of 70 or above. Do not submit an affidavit for an unsuccessful exam. Curriculum Support Faculty members from The National Alliance for Insurance Education & Research are assigned to take s from students participating in the online courses. Our faculty are experienced practitioners and teachers in the industry. We ask them to respond to each within 24 hours, or before the end of the next business day. The course mentor will be happy to clarify any portion of the curriculum for you if you need help. Make sure you have carefully reviewed the course curriculum and clearly note the page or self quiz question number when you contact a course mentor. Addtl Insureds & Certificates Rev. 02/10 Page 5

6 Help Desk The mentors will refer any computer issues you have to the OnLine Help desk. National Alliance staff are available by phone or for technical support issues. To phone the OnLine Help Desk call: and select option 2. Monday through Friday 8:30 am to 5:00 pm Central Standard Time Course Study and Exam Preparation Have you ever thought about how you learn? The study aids listed below will help you determine your progress and test your understanding of concepts and examples presented in the course. Learning Objectives: Learning objectives are designed for managing your own learning. The learning objectives for the course are listed at the beginning of each topic. The learning objectives are indicated throughout the course pages as well. At the end of the course, you will have the opportunity to read the learning objectives again, and see how confident you feel about each one. Self Quizzes: Self Quizzes are another learning management tool. You are required to pass each self quiz with a score of 70 or above before moving forward in the course, and you can launch a self quiz as many times as needed. To print the score page of your self quiz, click on Assessment Results, then right click on the page. The Assessment Results page makes an excellent study aid. Glossary terms and definitions: Glossary terms and definitions are critical to insurance professionals, and a key study aid for your online course. To define a term, click on the Glossary link above. Definitions of newly introduced terms will also be included on the course pages. Addtl Insureds & Certificates Rev. 02/10 Page 6

7 Knowledge Checks: Knowledge checks are application level questions. By attempting to apply the concepts of the course, you will better prepare yourself for the final exam. Make sure you attempt each knowledge check in the course. Course Mentor: And don t forget to the Course Mentor with your questions about the curriculum. Our faculty members are distinguished producers and risk managers who currently work in the insurance industry. The mentors are happy to explain and clarify the concepts in the course. They will return your on or before the next business day. Frequently Asked Questions (FAQs): Please see the following guides for more information. General Question FAQs: Computer/Technical FAQs: Final Exam FAQs: Continuing Education FAQs: FLORIDA RESIDENTS ONLY An entity that is required to be licensed or registered with the Florida Office of Insurance Regulation but is operating without the proper authorization is identified as an unauthorized insurer. All persons have the responsibility of conducting reasonable research to ensure they are not writing policies or placing business with an unauthorized insurer. Any person who, directly or indirectly, aid or represent an unauthorized insurer can lose their licenses or face other disciplinary sanctions. Please see section , Florida Statutes, to read the laws. Lack of careful screening can result in significant financial loss to Florida consumers due to unpaid claims and/or theft of premiums. Under Florida law, a person can be charged with a third-degree felony and also held liable for any unpaid claims and refund of premiums when representing an unauthorized insurer. It is the person s responsibility to give fair and accurate information regarding the companies they represent. Addtl Insureds & Certificates Rev. 02/10 Page 7

8 Course Objectives Overview Section 1 Introduction to Additional Insureds & Certificates of Insurance This lesson builds the foundation for the study of additional insureds and certificates of insurance. Section 2 Additional Insureds & the CGL This lesson explains what an Additional Insured is, the problems associated with Additional Insureds and commonly used endorsements to provide Additional Insured status on the ISO Commercial General Liability Policy. Section 3 Additional Insureds & the BAP While Additional Insured discussions most frequently revolve around the Commercial General Liability Policy, the Business Auto Policy should not be ignored. There are situations when clients will want or need to expand Who is an Insured on their Business Auto Policy to provide coverage to specific individuals or organizations. Section 4 Certificates of Insurance In this section we will review certificates of insurance including their purpose, their role in the additional insured process, the importance of accuracy when issuing certificates, the problems when modifying language on the certificate, and the potential for an errors & omissions claims associated with certificates. Course Summary Pages Use the summary section to link back to each learning objective in the course before moving on to the review test and (if applicable) final exam. Use the Course Status link on the top menu bar to keep track of your self quiz scores. When all scores show 70% or above on your course status page, a link to the Review Test and Final Exam area will display. Addtl Insureds & Certificates Rev. 02/10 Page 8

9 Section 1 Introduction to Additional Insureds & Certificates of Insurance This lesson builds the foundation for the study of additional insureds and certificates of insurance. Learning Objectives 1. Explain the two reasons contractual risk transfer is used. 2. Understand the differences between a waiver of subrogation, a hold harmless/indemnity agreement, additional insured status, and a certificate of insurance. 3. Explain how additional insured requirements fit into the risk management process. 4. Explain the interrelationship among hold harmless/indemnity agreements, additional insureds and certificates of insurance. Introduction Additional insured endorsements and certificates of insurance are part of the everyday life of many insurance professionals; especially those working in commercial lines. Not only do clients request that an individual or organization be added to their policies as an additional insured, but clients also request that other individuals or organizations name them as an additional insured on their policy. Certificate issuance can be a continuous activity for an agency that specializes in certain market segments such as contractors, manufacturers, and property managers. Before discussing the specifics of additional insureds and certificates of insurance, let s first look at the reasons they are requested. Addtl Insureds & Certificates Rev. 02/10 Page 9

10 Contractual Risk Transfer Learning Objective: Explain the two reasons contractual risk transfer is used. We live in a litigious society. Lawsuits are frequent, and settlements are large. Not only do individuals and organizations have to plan for these losses and how they will be paid, but they also face rising insurance costs. These factors increase the desire for individuals and organizations to spread and transfer risk, with contractual transfer being the tool most commonly used to transfer risk. Clients are always signing contracts in order to lease premises or equipment, obtain a product or service, or provide a product or service. These contracts may require your clients to add the other individual or organization as an additional insured to their commercial general liability policy and/or business auto policy. An additional insured request is rarely the only insurance-related requirement in a contract. In fact, additional insured status is usually requested to support other insurance-related requirements in the contract. Let's go over some examples of situations that may result in your client requesting (1) an individual or organization be named as an additional insured, (2) a certificate of insurance, or (3) both. O Malley s Fine Furnishings is celebrating its 50th Anniversary. In conjunction with a big weeklong anniversary sale, O Malley s will be serving free hot dogs and burgers. They are renting a large grill from Backyard Barbecue Company, Inc. for this purpose. The rental agreement for the grill reads as follows: The renter of this equipment agrees to hold Backyard Barbecue Company, Inc. and its staff harmless for any third-party claims which may arise from the use of the equipment. The agreement also requires O Malley s to provide a certificate of insurance for its general liability coverage providing limits of at least $500,000. Addtl Insureds & Certificates Rev. 02/10 Page 10

11 We Haul For You, Inc. has entered into a contract with O Malley s Fine Furnishings to deliver furniture to their clients. The contract requires We Haul For You,Inc., to carry automobile liability limits of at least $1,000,000 and to add O'Malley's Fine Furnishings as an additional insured on its business auto policy. O Malley has also requested a certificate of insurance. Addtl Insureds & Certificates Rev. 02/10 Page 11

12 Tino Construction is a subcontractor doing work for Hasselback Home Builders. The contract requires Tino to defend, indemnify and hold Hasselback harmless for any third-party claims caused in whole or in part by Tino. Tino is required by the contract to: carry limits of at least $1,000,000, name Hasselback as an additional insured, and provide Hasselback with a certificate of insurance. Hendricks Interior Design leases warehouse space from Triple A Properties. The lease requires Hendricks to hold Triple A harmless from any bodily injury or property damage to a third party and to be added as an additional insured to Hendricks general liability policy with limits of at least $1,000,000. Addtl Insureds & Certificates Rev. 02/10 Page 12

13 Contractual Obligations Learning Objective: Understand the differences between a waiver of subrogation, a hold harmless/indemnity agreement, additional insured status, and a certificate of insurance. Other insurance-related items in a contract typically include one or more of the following requirements. In the next few pages, we will look at each one in more detail, to the extent it impacts additional insureds and certificates of insurance. A contract may require your client to waive the insurance company s right to subrogate against the other party to the contract. In fact, many contracts include a mutual waiver of subrogation. Your client, Smith Industries, Inc. has entered into a contract with Jones, Inc. for a building project. The contract language is as follows: Section Subrogation Smith Industries Inc. and Jones Inc. shall obtain waivers of subrogation from its insurers in favor of the other, and its subsidiary and affiliated companies, under all policies of insurance, including (without limitation) those referred to above maintained by or for the benefit of this project. Each party waives its rights to recovery against the other in subrogation. Addtl Insureds & Certificates Rev. 02/10 Page 13

14 Waiver of Subrogation The Commercial General Liability Policies all contain language that state the insured must do nothing after the loss to impair the insurance company s right to subrogation. Though not expressed, this condition implies that an insured can waive recovery against a third party prior to a loss. Commercial General Liability Policy Section IV 8. 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. To satisfy Smith s contractual obligation to obtain a waiver of subrogation, the endorsement Waiver of Transfer of Rights of Recovery Against Others to Us (CG 24 04) must be added to Smith s general liability policy. Under this endorsement, the insurance company is verifying in writing what is otherwise implied, that it waives its right to subrogate against Jones, Inc. for either: injury or damage arising out of Smith s ongoing operations or Smith s work done under a contract with Jones and included in the products-completed operations hazard. Go to the course for a printable version of Waiver of Transfer of Rights of Recovery Against Others to Us (CG 24 04) Addtl Insureds & Certificates Rev. 02/10 Page 14

15 A contract requiring a waiver of subrogation frequently requires a certificate of insurance as evidence there is an insurance policy (or policies) in effect. Certificates of insurance will be discussed later in this course. Hold Harmless/Indemnity Agreement Contracts may require your client to hold the other party to the contract harmless. In other words, your client accepts responsibility, on behalf of the other party to the contract, for bodily injury or property damage to a third party. Sample Language Exhibitor agrees to protect and hold Clark County Convention Center and all agents and employees thereof (hereinafter collectively called Indemnities), and shall at all time whether occasioned by the negligence of the exhibitor protect, indemnify and hold harmless the Indemnities against and from any and all losses, costs, damages, liability or expenses (including attorney s fees) arising of from or out of or by reason of any accident or bodily injury or other occurrences to any person or persons, including the exhibitor, its agents, employees or business invitees, which arise from or out of by reason of said exhibitor s occupancy and use of the exhibition premises or any part thereof. Sample Language The Contractor shall defend, indemnify and hold the County, its officers, officials, employees, and volunteers harmless from any and all claims, injuries, damages, losses or suits including attorney fees, arising out of or in connection with the performance of this Agreement, except for injuries and damages caused by the sole negligence of the County. The indemnity part of the agreement requires your client to indemnify (make whole) the other party to the contract due to bodily injury or property damage to a third party. Hold harmless/indemnity agreements are frequently accompanied by: a request to be added as an additional insured, and a request for a certificate of insurance. Addtl Insureds & Certificates Rev. 02/10 Page 15

16 Example Due to your client s negligence, the other party to the contract must pay damages to a third party. Your client agrees to reimburse the other party for the payment. You may recall our memory tool for the definition of Insured Contract from the CISR Insuring Commercial Casualty Course, LEASEPLUS. Contractual liability is excluded in the Commercial General Liability Policy EXCEPT for damages that the insured would have had in absence of the contract (or agreement) or for liability assumed in an insured contract (PLUS). Recall our example: Due to your client s negligence, the other party to the contract must pay damages to a third party. Your client agrees to reimburse the other party for the payment. This tort liability, assumed under the contract, may be covered by the client s Commercial General Liability Policy as it falls within the definition of an insured contract. While the CGL may provide coverage for the named insured s contractual agreement to indemnify the other party to the contract, it is common to see the contract also require additional insured status for the other party. Knowing that your client is more than likely relying on insurance to provide this indemnification, the other party to the contract may also require a certificate of insurance in conjunction with an indemnity agreement. Addtl Insureds & Certificates Rev. 02/10 Page 16

17 Knowledge Check Drag each term to its appropriate description. (This exercise must be completed in the online course.) Indemnity Waiver of subrogation Hold harmless Drag Answer to Here Drag Answer to Here Drag Answer to Here Your client agrees not to allow the insurance company to recover the amount of a loss payment from another party. Your client accepts responsibility, on behalf of ABC Stores (the other party to the contract), for bodily injury or property damage to a third party. In the event ABC Stores has to pay bodily injury or property damage to a third party, your client agrees to reimburse ABC Stores and make it whole. The answers are: Waiver of subrogation Hold harmless Indemnity Your client agrees not to allow the insurance company to recover the amount of a loss payment from another party. Your client accepts responsibility, on behalf of ABC Stores (the other party to the contract), for bodily injury or property damage to a third party. In the event ABC Stores has to pay bodily injury or property damage to a third party, your client agrees to reimburse ABC Stores and make it whole. Addtl Insureds & Certificates Rev. 02/10 Page 17

18 Additional Insureds The other party to the contract may require the client to name it as an additional insured on the client s insurance policy. Additional insureds must be added by endorsement. The coverage provided for the additional insured is determined by the insurance policy and the specific additional insured endorsement used. Additional Insureds will be discussed in depth later in this course. Certificates of Insurance A certificate of insurance is a form or document that indicates that your client has a certain type or types of insurance coverage in force at the time the certificate is issued. It usually serves as proof of insurance in a loan transaction or for some other legal requirement. Clients frequently require their insurance agent or insurance company to issue certificates of insurance to others on their behalf. Likewise, clients may require others to issue certificates of insurance on the clients behalf. Certificates of insurance will be discussed in depth later in this course. Addtl Insureds & Certificates Rev. 02/10 Page 18

19 Risk Management Process The insurance professional should know where additional insureds, hold harmless agreements, indemnity agreements and certificates of insurance fit in the 5 step risk management process. Risk management is defined as: The process of protecting an organization s assets through: 1. exposure identification, 2. exposure analysis, 3. controlling exposures, 4. financing losses with external and internal funds, and 5. the implementation and monitoring of the risk management process. Addtl Insureds & Certificates Rev. 02/10 Page 19

20 Learning Objective: Explain how additional insured requirements fit into the risk management process. Step 3 Risk Control includes the techniques used by clients to reduce loss frequency and severity. Transfer, other than insurance, is one of the six primary risk control techniques. The methods of contractual transfer have previously been introduced. "Exculpatory Agreements" and "Other than Transfer" will not be discussed during this course; however, you may click on each term for a description. Other than Transfer Other than transfer refers to the risk control techniques of avoidance, prevention, reduction, segregation, duplication and a combination of these. These techniques are discussed in detail in our CSRM Handling School Risks Course. Exculpatory Agreements Exculpatory Agreement or Clause. Pre-event exoneration of the fault of one party that results in any loss or specified loss to another. How do all these agreements fit into your client's risk management strategies? Your client, Sam, Inc., enters into a contract with another party, George, Inc. Sam, Inc. requires George, Inc. to: 1. Hold Sam, Inc., harmless and indemnify Sam, Inc. for bodily injury and property damage for loss subject to the contract. 2. Carry the liability limits stipulated in the contract. 3. Name Sam, Inc. as an additional insured on George, Inc.'s policy. 4. Waive the insurance company's right to subrogate. Addtl Insureds & Certificates Rev. 02/10 Page 20

21 Sam, Inc. is using contractual transfer of risk as a risk control method to prevent or reduce his own exposure to liability that might arise out of his relationship with George, Inc. What if your client is George, Inc. rather than Sam, Inc.? Keep in mind, when your client enters into a contract that requires him or her to hold harmless and indemnify another party, agree to a waiver of subrogation and add an additional insured, it is the other party that is applying contractual transfer as a risk control technique. In other words, transfering potential risk to your client. The client's insurance policy is typically relied upon to provide financing for losses subject to the contract and covered by the policy. George needs to: 1. Contact his insurance agent or insurance company to: a. increase his liability limits as required by the contract; b. add Sam, Inc. as an additional insured to his general liability policy. Note: George does not have to request the Waiver of Transfer of rights of Recovery Against Others to Us as written verification of such was not required by the contract. Contractual Risk Transfer Agreements & Certificates Learning Objective: Explain the interrelationship among hold harmless/indemnity agreements, additional insureds and certificates of insurance. We have discussed the most common insurance-related requirements included in the contracts your clients are entering into. While each requirement operates independently from the others, there is frequently a connection. Addtl Insureds & Certificates Rev. 02/10 Page 21

22 For example, a contract that includes a hold harmless/indemnity agreement will typically require additional insured status. Since the other party wants to make sure there is financing available for the liability assumed, a certificate of insurance may also be required. Certificates and Additional Insured Status When additional insured status is requested, the policy must typically be endorsed by adding the person or organization as an additional insured, using the appropriate additional insured endorsement. Once the additional insured endorsement has been added to the policy, a certificate of insurance can be issued. The certificate of insurance would state, "The certificate holder is added as an additional insured by endorsement, (including the endorsement form number)" in the Description of Operations section of the certificate. It is important to understand that simply issuing a certificate of insurance, without requesting the additional insured endorsement, does not make the certificate holder an additional insured. A certificate holder is not automatically an additional insured. An additional insured must be added to the policy by endorsement. Certificates of Insurance and Waivers of Subrogation As a Waiver of Subrogation applies to losses covered by an insurance policy, a certificate of insurance is typically required. Depending on the policy, an endorsement may be required if subrogation is waived. Certificates of Insurance Without Other Requests Certificates of insurance are routinely requested without an accompanying request for a hold harmless/indemnity agreement, additional insured status or waiver of subrogation. Addtl Insureds & Certificates Rev. 02/10 Page 22

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24 Summary We have now laid the foundation for the continued discussion of both additional insureds and certificates of insurance. Why is additional insured status required? What coverage is granted by an additional insured endorsement to the Commercial General Liability Policy or the Business Auto Policy? What information should be provided on a certificate of insurance? What happens when a certificate of insurance is issued incorrectly? What are the steps an agency should take to reduce the likelihood of an errors or omissions claim related to additional insureds and certificates of insurance? The remainder of this course will answer these questions in detail, as we analyze the most commonly used additional insured endorsements to the Commercial General Liability and Business Auto Policies, and discuss certificates of insurance. Please refer to the end of Section 1 to go over the self quiz. Addtl Insureds & Certificates Rev. 02/10 Page 24

25 Section 2 Additional Insureds & the CGL This lesson explains what an additional insured is, the problems associated with additional insureds, and commonly used endorsements to provide additional insured status on the CGL. Learning Objectives 1. Define the three types of insureds on a CGL Policy. 2. Provide examples of why another party would want to be named as an additional insured on your client's CGL Policy. 3. Explain problems associated with additional insured status for both the named insured and the additional insured. 4. Explain the purpose of the endorsements commonly used to add additional insureds to a CGL Policy and the coverage that each provides. 5. Understand why an insured would benefit from a blanket additional insured endorsement. Additional Insureds & the CGL Learning Objective: Define the three types of insureds on a CGL Policy. There are three types of insureds on most insurance policies. The named insured is the one that we are most familiar with. To understand additional insureds and the need for additional insured status, there should be an understanding of who is a Named Insured and who is an Automatic Insured. Named Insureds The individual or entity shown on the declarations page. Typically referred to as a you in the policy. The named insured is provided the broadest coverage. Automatic Insureds These individuals or organizations are made an insured by policy language. These parties are typically identified in the Who is an Insured section of the policy. Nothing needs to be done to trigger insured status for these parties; insured status is automatic. Addtl Insureds & Certificates Rev. 02/10 Page 25

26 Additional Insureds These individuals or organizations can be made an Additional Insured on the policy only by endorsement. Knowledge Check We are about to study the following types of insureds: Named Insureds, Automatic Insureds, and Additional Insureds. (This exercise must be completed in the online course.) Additional Insureds Named Insureds Automatic Insureds Drag Answer to Here Drag Answer to Here Drag Answer to Here This insured is any person or organization whose name appears on the declarations page of the insurance policy, who has the broadest coverage available on the policy, and who is responsible for premium. This is an insured by virtue of language which already exists in the policy (Who is an Insured section) such as employees of the named insured or the named insured s real estate manager. This refers to one or more persons or organizations other than the person or organization named on the declarations page of an insurance policy who are also covered for certain losses under the policy. These insureds are added by endorsement. The answers are: Named Insureds Automatic Insureds Additional Insureds This insured is any person or organization whose name appears on the declarations page of the insurance policy, who has the broadest coverage available on the policy, and who is responsible for premium. This is an insured by virtue of language which already exists in the policy (Who is an Insured section) such as employees of the named insured or the named insured s real estate manager. This refers to one or more persons or organizations other than the person or organization named on the declarations page of an insurance policy who are also covered for certain losses under the policy. These insureds are added by endorsement. Addtl Insureds & Certificates Rev. 02/10 Page 26

27 Using the Commercial General Liability Policy, let s review the policy language identifying Who is an Insured. Named Insured The policy language is located in the second paragraph of Section I of the Commercial General Liability Coverage Form. Throughout this policy the words "you" and "your" refer to the Named Insured shown in the Declarations, and any other person or organization qualifying as a Named Insured under this policy. The words "we","us" and "our" refer to the company providing this insurance. Automatic Insureds The word "insured" means any person or organization qualifying as such under Section II Who Is An Insured. Read the policy wording first. Then we will summarize it on the next page. Click here for CGL Coverage Form Section II Who is an Insured Summary of Automatic Insureds You may also wish to review by looking at a print copy of the Commercial General Liability Coverage Form CG Who Is An Insured Named Insured The Commercial General Liability Policy gives coverage to the Named Insured shown in the Declarations. The Named Insured is defined as you or your depending on the nature of your organization. Named Insureds have the broadest coverage of any under the policy. Examples of common Named Insureds include: Individuals Named Individuals and Spouse Partnerships or Joint Ventures Named Partnership or Named Joint Venture, Partners, Members & Spouses Limited Liability Company (LLC) Named LLC, Members & Managers Other Organizations Named Entity, Executive Officers, Directors & Stockholders Addtl Insureds & Certificates Rev. 02/10 Page 27

28 Others with Respect to Business Operations In addition to the Named Insured, other people or entities are considered to be insureds under the CGL. Each of the following four groups is also an insured under the Commercial General Liability Policy. These four groups include: Employees Real Estate Managers Temporary Custodian of a Deceased Individual s Business Legal Representative Newly Acquired or Formed Organization If the Named Insured acquired or forms a new organization, over which it maintains ownership or majority interest, that acquired or formed organization may automatically become a Named Insured under the CGL Policy, provided there is no other similar insurance available to it. This coverage is provided until the 90 th day after the acquisition or formation, OR until the end of the policy period whichever is earlier. Knowledge Check Let's apply the policy language to "real world" situations. To make sure you understand the types of entities that are described in the Who is an Insured section of the CGL Policy, ask yourself if any of the following entities would be an automatic insured. Select Yes or No from the drop down list. Yes or No - The named insured buys a corporation for a new business venture. Is the corporation covered as a newly acquired entity? Yes or No - The named insured creates a new partnership. Is the partnership covered as a newly acquired entity? Yes or No - The named insured's spouse starts a new business. Is that business an automatic insured? Yes or No - BBK Industries is providing a maintenance operation for the named insured. Is that entity an automatic insured? Addtl Insureds & Certificates Rev. 02/10 Page 28

29 The answers are: Yes - The named insured buys a corporation for a new business venture. Is the corporation covered as a newly acquired entity? No - The named insured creates a new partnership. Is the partnership covered as a newly acquired entity? No - The named insured's spouse starts a new business. Is that business an automatic insured? No - BBK Industries is providing a maintenance operation for the named insured. Is that entity an automatic insured? Knowledge Check Let's apply the policy language to "real world" situations. Five more examples to make sure you understand automatic insureds: Are any of the following considered automatic insureds under the "Who is Insured" section of the CGL? Select Yes or No for each entity. Yes or No - An employee while on the job. Yes or No - The named insured s real estate manager. Yes or No - The spouse of a corporate officer with respect to the conduct of business. Yes or No - The spouse of a partner with respect to the conduct of the business. Yes or No The roofing contractor while replacing the roof on the named insured s building. The answers are: Yes - An employee while on the job. Yes - The named insured s real estate manager. No - The spouse of a corporate officer with respect to the conduct of business. Yes - The spouse of a partner with respect to the conduct of the business. No The roofing contractor while replacing the roof on the named insured s building. Addtl Insureds & Certificates Rev. 02/10 Page 29

30 Why Name an Additional Insured? Learning Objective: Provide examples of why another party would want to be named as an additional insured on your client's CGL Policy. What creates the need to be named an additional insured and more importantly, why would the named insured want to add someone as an additional insured? While there are several reasons behind these requests, the primary reason is to provide additional insureds coverage for losses for which they may be legally liable due to their relationship with your client. They want to protect themselves from liability that arises out of your client s activities. The upstream party such as the building owner or business owner wants to be added as an additional insured on the policies of the downstream party such as the tenant, service provider, contractor, or subcontractor. Service providers may be required to name customers as additional insureds while manufacturers, wholesalers and distributors may be required to name retailers as additional insureds. Reasons for Requesting Additional Insured Status Others may wish to be named additional insured because: 1. It may assure greater safety in a risk finance transfer. 2. It creates the potential for the availability of higher limits of coverage. 3. It can give them direct rights to your client's insurance. 4. It may protect them from the potential risk of subrogation. 5. It creates the potential to reduce the cost of their insurance. Addtl Insureds & Certificates Rev. 02/10 Page 30

31 5 Reasons to Request Additional Insured Status 1. Requesting Additional Insured Status may assure greater safety in a risk finance transfer. In addition to the request for your client to hold the other party to the contract harmless, the contract may also require your client to name the other party as an additional insured to your client's CGL Policy. Why are both necessary? There are situations when the courts may find a hold harmless agreement unenforceable. This usually takes place after the loss. As a result, the party that relied upon the hold harmless agreement to pay for a loss may now need to use its own funds. This isn t a desired outcome. By requiring additional insured status in conjunction with the hold harmless agreement, the other party can rely on your client s insurance coverage as an additional insured if the hold harmless isn t enforceable. Additional insured status of the other party assures it greater safety in a risk finance transfer a safety-net if you will for the hold harmless agreement. If they can t be found harmless, they can seek coverage under your client s insurance policy. Addtl Insureds & Certificates Rev. 02/10 Page 31

32 Greater Safety for Risk Finance Transfer For example: In a contract with Clark Construction, your client agreed to hold the construction company harmless for any loss arising out of his or her work for it. The hold harmless agreement requires your client to respond to certain legal liabilities for bodily injury or property damage that arise out of the client s work for Clark. It is important to Clark that your client be financially able to pay for losses that are part of the hold harmless agreement. Otherwise, Clark could find itself responsible for paying for a loss that it didn t plan for. As an additional insured on your client s CGL Policy, Clark knows that there is insurance in place (this is a risk finance technique) that will provide coverage for them as well as your client. In other words, as an additional insured, Clark knows that funds should be available and coverage provided. 2. Additional insured status can give another party direct rights to your client's insurance. As an insured, additional insureds have direct rights to your clients CGL insurance. They can make their own direct claim under the policy. If circumstances warrant it, they can also sue the insurance company to obtain the court s assistance in establishing their rights under the policy, including the right to a defense. 3. Additional insured status may protect the other party from the potential risk of subrogation An insurance company cannot subrogate against the named insured (the first party to the contract) after it pays a loss under the CGL Policy. As an insured under the policy, the additional insured would enjoy this same benefit in most jurisdictions; therefore, an additional insured would not be subject to subrogation. Addtl Insureds & Certificates Rev. 02/10 Page 32

33 For example: The Pacific Northwest Quilter's Club added the Additional Insured Club Members (CG 20 02) endorsement to its CGL Policy. This endorsement makes club members additional insureds. The club had a booth at the local fair. Sara, a club member, accidentally injured a visitor to the booth while demonstrating the quilting process. The Quilter's Club s insurance company paid the bodily injury claim. Even though Sara caused the loss, the insurance company cannot subrogate against her because she is an insured an additional insured on the policy. 4. Additional insured status creates the potential for the availability of higher limits of coverage. Additional insureds may not only have access to the limits of insurance on your client s CGL on a primary basis, but they may also have access to their own CGL insurance limits on an excess basis. This creates the potential that the additional insured may be able to stack the limits from both policies in the event coverage is needed. For example: Burnson Construction is named as an additional insured on one of its sub-contractor s CGL Policy. A large loss occurs and the limits on the subcontractor s policy are not enough to pay the damages for which Burnson was found responsible. Burnson, after exhausting the limits available under its sub-contractor s policy, may have the limits on its own CGL available on an excess basis Addtl Insureds & Certificates Rev. 02/10 Page 33

34 5. Additional insured status creates the potential to reduce the cost of the additional insured's insurance. Since your client s insurance policy is providing primary coverage to additional insureds, the additional insureds own insurance may not be needed in the event of a loss. This results in better loss experience and possibly lower premiums for the additional insured s own insurance policy. From an underwriting standpoint, some insurance companies may require an insured to be named as an additional insured on the policies of others. It is also possible that clients requiring additional insured status on the policies of others may see a reduction in their cost of insurance as their insurance company recognizes primary coverage will be provided elsewhere. Knowledge Check Your client has been added as an additional insured to another party's CGL Policy. Which one of the following statements is true? a. Reasonable expenses incurred at the company's request. b. Your client agrees to assume the liability of the other party with respect to their business relationship. c. Your client may be able to use both the limits from the other party's policy as well as his or her own policy in the event of a loss. d. The other party's insurance company can still subrogate against your client. The answer is: C Close Relationship It is common for individuals or entities to request additional insured status on your clients CGL Policies for business purposes or for your client to request others be added as additional insureds due to a close relationship. We'll look at these types of requests in the next few pages. Addtl Insureds & Certificates Rev. 02/10 Page 34

35 ABC Janitorial Services Silver Creek Retirement Center has contracted with ABC Janitorial Services to maintain its premises. As part of the contract, ABC is required to add Silver Creek as an additional insured on their CGL Policy. If ABC negligently causes bodily injury or property damage, Silver Creek wants to be covered by ABC s policy. Tadd s Floors 4 You Tadd is interested in providing carpet, tile and hardwood installation for Hillside Floor Coverings as an independent contractor. Hillside Floor Coverings requires that it be added as an additional insured on each independent contractor s CGL Policy. If Tadd negligently causes bodily injury or property damage while working on behalf of Hillside, Hillside Floor Coverings wants to be covered by Tadd s policy. Association of Cars of Years Past The association is hosting a car show at the local fairgrounds. The fairground requires the association to add it as an additional insured to its CGL Policy so that they will be covered by the association s policy in the event of a bodily injury or property damage loss to a third party. The Ram Restaurant The Ram leases its space from Rainier Properties, Inc. Rainier is requiring they be added as an additional insured to The Ram's CGL Policy so that they will be covered by The Ram's policy in the event of a bodily injury or property damage loss. Meyers Printing Meyers Printing leases a $500,000 press from AJK Industries. The lease agreement requires that AJK be added to Meyers CGL as an additional insured so that AJK will be covered by Meyers policy in the event of bodily injury or property damage arising from the printing press. Easy Tools Easy Tools is a tool manufacturer. Many of the large retail tool stores will not carry Easy Tools products unless Easy Tools names the retail stores as additional insureds on its CGL Policy. The Espanada Condominiums Espanada requires its unit owners be protected under the condominium association s CGL for liability arising out of the ownership, maintenance or repair of the common areas of the condominium. Addtl Insureds & Certificates Rev. 02/10 Page 35

36 In each of the previous examples, your client wanted or needed to add the other party as an additional insured because of a business or close relationship. If your clients are unable or unwilling to provide the requested additional insured status, they may not be given the work or the contract for the work. The association will be unable to use the fairgrounds for the car show. The restaurant may not get the lease it wants. The printer will not be able to lease needed equipment. The tool manufacturer loses important distribution outlets. You can see the importance of additional insureds as it impacts your clients business and business decisions. Problems Associated with Additional Insureds Learning Objective: Explain problems associated with additional insured status for both the named insured and the additional insured. We have just seen examples of situations that support the need for your clients to add additional insureds to their CGL Policy. Before introducing and discussing various additional insured endorsements, it is important to understand how additional insureds can create potential problems for both the named insured and the additional insured. The named insured may not have a choice in the matter; they must either add the additional insured or lose the contract or lease. Nevertheless, they should be made aware of the potential problems with adding additional insureds to their policy. Likewise, if your clients are added to policies of others as an additional insured, they should know of the potential problems when relying on someone else s insurance for protection. Addtl Insureds & Certificates Rev. 02/10 Page 36

37 Problems for the Named Insured 1. Diminution of Policy Limits The number one problem for the named insured is the potential for diminution of policy limits. Regardless of the number of insureds (named, automatic or additional), there is only one pot of money per occurrence. The more insureds, the more fingers in the pot. Too many fingers in the pot increases the chances of the named insured having fewer dollars to pay damages for which it is held responsible. It makes sense that when more entities share the available limits, the limits may be used up more quickly when claims occur. 2. Unintended Coverage Granted to the Additional Insured It is possible to provide unintended coverage for the additional insured. This does not usually happen on carefully constructed standard additional insured endorsements. However, some manuscript endorsements are so broad they provide unintended coverage. A manuscript endorsement is wording agreed to by the insured and the insurance company when a standard endorsement is not available. 3. Compliance Problems Adding additional insureds places administrative burdens on the named insured as well as the insurance agency and its insurers. If the policy is cancelled or if the named insured reduces the level of coverage on the policy, the additional insured expects to be notified. Administrative breakdowns may easily result in a breach of contract, which is not covered by the named insured s insurance policy. Addtl Insureds & Certificates Rev. 02/10 Page 37

38 Diminishing Limits of Insurance Craig s Construction Company, Inc., does concrete work all over town and for different builders. As a result, six different entities have been added as additional insureds to Craig s CGL. A large liability loss occurs and now three of the additional insureds are each looking at his $1M limit of liability on his CGL. With four insureds, the policy limits could quickly erode and potentially leave Craig with an insufficient amount of coverage to pay for his claim. Unintended Coverage Provided to the Addtional Insured Rod, Inc. is a large-scale contractor building a condominium. He is hiring all kinds of sub-contractors. His insurance company attached an endorsement to his CGL Policy that states any and all subs are additional insureds under certain situations. The wording is so inclusive that it could extend coverage to a subcontractor that Rod did not intend to include. Compliance Problems Tim s Toys, LLC was required in a contract to name a major toy store as an additional insured before the store would carry its products. The contract also required Tim to carry $1M limits for bodily injury and property damage. Tim provided the store with a certificate of insurance reflecting the $1M coverage and additional insured status. Addtl Insureds & Certificates Rev. 02/10 Page 38

39 Several months later and forgetting about the contractual requirement, Tim changed its coverage to $500,000 in an effort to reduce expenses. A loss has now occurred and the major toy store has just learned of Tim s apparent breach of contract when he failed to comply with the contractual requirement to carry $1M liability coverage. Problems for the Additional Insured 1. May lose control of defense and investigation The additional insured may lose control of his/her defense and investigation. The insurance company, and not the additional insured, hires and directs the legal counsel. The insurance company may, at its discretion, investigate any occurrence and settle any claim or suit that may result. The insurance company does not have to have the permission of the additional insured before it can settle a claim or lawsuit. 2. Other insurance conflicts There may be Other Insurance conflicts for the additional insured. Insurance policies include Other Insurance provisions, which state that a particular policy is primary or excess and contributing or non-contributing when there is other insurance in force. Disputes between insurance companies over who pays first and how much can stall or limit claim payment. We'll look at this a little more closely in this section. Addtl Insureds & Certificates Rev. 02/10 Page 39

40 3. Limited coverage for the additional insured There may be limited coverage under current forms. There have been significant changes made to additional insured endorsements over the years. Each edition date may change the coverage provided for the additional insured. 4. Dependency on another party s insurance There may be limited coverage under current forms. Limits, edition dates of the CGL, exclusions and endorsements are outside of the additional insured s control. Loss of Control Over Defense & Investigation - Example Benum Construction was named as an additional insured on Charlie s Construction s CGL. A claim was made against both Benum and Charlie s by someone injured at the construction site. Benum told Charlie s insurance company that they are not at fault for the injuries; in fact, it was the injured person s own fault. Benum does not want the insurance company to settle with the injured person because Benum's reputation would be ruined. Charlie s insurance company, after investigating the loss, settles with the injured party. Addtl Insureds & Certificates Rev. 02/10 Page 40

41 Other Insurance Disputes over the priority of coverage often arise when clients purchase their own policy and also intentionally obtain coverage as an additional insured on the CGL. It is generally understood that the intent of this arrangement is that your client s own CGL Policy, the CGL on which the client is listed as a named insured, is to apply as excess and not share its limits with the CGL policy on which the client is an additional insured. For example, the general contractor has his own CGL and is also listed as an additional insured on the sub-contractor s CGL. If both policies are the 2007 ISO CGL form, the sub-contractor s CGL will provide primary coverage for the general contractor. The general contractor will have excess coverage provided by his own CGL. The December 2007 ISO CGL other insurance wording generally (with some notable exceptions) complies with this intent when the additional insured has been listed by endorsement to the other party s CGL. Problems can arise when the CGL is an earlier edition date or the CGL Policy is an insurance company proprietary form and not an ISO form. The other insurance language in either of these could include very significant differences, which could take away primary coverage for an additional insured. It should also be noted that the other insurance language in the ISO CGL 2007 edition applies to additional insureds that have been added to the insurance policy. Additional insureds added to the policy will have primary coverage under that policy and excess under their own CGL Policy. This wording does not provide the same coverage for automatic insureds. Automatic insureds, such as a real estate manager, could find themselves with two policies providing coverage on a primary basis. This will result in the policies sharing of limits, which might not have been the intent of either party. Addtl Insureds & Certificates Rev. 02/10 Page 41

42 Benum Construction was also named as an additional insured on the CGL for Kitchens 4 You. Benum required and understood Kitchens policy to provide liability coverage on a primary, noncontributory basis. A loss occurs at which time Benum discovers Kitchens CGL Policy states that coverage available to any additional insured applies only as excess to any insurance purchased by the additional insured. While Benum expected Kitchens policy to pay on a primary basis, it is now looking to its own insurance policy for primary coverage. Limited Coverage Under Current Forms As we will discuss shortly, the 11/85 edition of the CG included additional insured status for liability arising out of the insured s work while the 7/04 edition provides coverage for liability arising out of the named insured s acts or omissions or those acting on behalf of the named insured. In other words, the latest edition requires the act or omission to be the named insured s or those working on behalf of the named insured. This does not provide coverage if the loss is the result of the act or omission of the additional insured. The 11/85 edition also provided coverage for liability arising out of the named insured s work, which included Completed Operations. Subsequent edition s provide coverage arising out of the ongoing operations for the Additional Insured. Ongoing operations does not include completed operations. You can see the importance of knowing the edition date of the additional insured endorsement being used. Addtl Insureds & Certificates Rev. 02/10 Page 42

43 Dependency On Another's Insurance How does the additional insured know that the policy is still in effect, the required limits still carried, the edition date of the CGL, and the endorsements or exclusions that apply? These factors are outside of the direct control of the additional insured, yet they potentially impact whether or not coverage will be available at the time of a loss. Knowledge Check Which of the following describes the main problem with diminution of limits of liability when a policy has a number of automatic and additional insureds? a. Too many fingers in the pot increases the chances of the named insured having fewer dollars to pay damages for which it is held responsible. b. A breach of contract could occur if the named insured fails to comply with the limits of liability agreed to under the contract. c. Other insurance conflicts may cause problems for the additional insured as to which policy is primary. d. It is possible to provide unintended coverage for the additional insured. The answers is: A Addtl Insureds & Certificates Rev. 02/10 Page 43

44 Additional Insured Endorsements Learning Objective: Explain the purpose of the endorsements commonly used to add additional insureds to a CGL Policy and the coverage each provides. Before selected additional insured endorsements are discussed, let s first have a lesson on the importance of the form number and edition date. Some additional insured endorsement forms have more than one edition date. Since coverage can vary greatly among edition dates, it is very important to know which edition date has been requested and which edition date is being used. Because the edition date is embedded in the additional insured endorsement s form number, let s review the components of an ISO additional insured endorsement s form number. Anatomy of an Additional Insured Endorsement Form Number The ISO Additional Insured endorsements to the ISO Commercial General Liability Coverage Form ALL begin with CG 20. The next two numbers are the specific form number for that specific endorsement. The final four numbers indicate the month and year of the edition date. Imagine that the form is the ISO July 2004 edition of CG Drag each numbers to the appropriate box. (This exercise must be completed in the online course.) Answer: Addtl Insureds & Certificates Rev. 02/10 Page 44

45 Endorsement Forms There are numerous additional insured endorsements, designed to meet the specific needs of the various types of additional insureds. For this course, the additional insured endorsements listed below have been selected for review and analysis. If you wish, you may click on each link to view and/or save a.pdf file of each endorsement form. Additional Insured Owners, Lessees or Contractors Scheduled Person or Organization CG Additional Insured Owners, Lessees or Contractors Completed Operations CG Additional Insured Managers or Lessors of Premises CG Additional Insured Lessor of Leased Equipment CG Additional Insured Vendors CG Common Additional Insured Endorsements CG Sole Negligence/Contributory Negligence Failure to exercise care that an ordinary prudent person would exercise. Negligence requires the following: Duty owed to another Breach of that duty Actual injury Proximate cause Sole negligence indicates negligence by a single party, contributory negligence indicates that more than one party has met the requirements for negligence in a cause of action. Addtl Insureds & Certificates Rev. 02/10 Page 45

46 Completed Operations Liability Legal liability results when injury to others or damage to property of others arises out of defective or improper workmanship. The exposure applies to the insured's work. This exposure begins once the operations have been completed and the insured leaves the work site. Additional Insured Owners, Lessees or Contractors Scheduled Person or Organization (CG ) This endorsement is used when owners, lessees, and contractors have required that they be added to a contractor or subcontractor s CGL Policy. This endorsement modifies the Who is Insured section of the CGL to include the person or organization shown in the schedule, but only for liability caused in whole or in part by the named insured s acts or omissions or the acts or omissions of those acting on the named insured s behalf. These acts or omissions must take place in the performance of the named insured s ongoing operations for the additional insured; the most recent edition does not include completed operations. See online course to view a printable copy of the endorsement form. Addtl Insureds & Certificates Rev. 02/10 Page 46

47 11/85 Edition This additional insured endorsement has gone through four changes since the 11/85 edition. It is the endorsement that generates the most discussion because there are additional insureds that specifically request the 11/85 edition due to the broad protection it provides for the additional insured. The 11/85 edition provided coverage for the additional insured for liability arising out of your work for that insured by or for the named insured. By the CGL definition, your work includes completed operations. It is difficult to find insurance companies able &/or willing to provide the 11/85 edition. This endorsement has four edition dates, each providing more limited coverage than the previous edition. It is important to understand the coverage distinctions of each edition date. Addtl Insureds & Certificates Rev. 02/10 Page 47

48 11/1985 This edition date used your work (instead of your ongoing operations as used in other editions). Since the term your work was associated with completed operations, this edition included completed operations for the additional insured. 10/1993 This edition replaced your work with your ongoing operations performed for that additional insured. Since the term your work was associated with completed operations, its replacement with ongoing operations effectively eliminates completed operations coverage for those additional insureds covered by this endorsement. After all, once work is completed it is no longer ongoing. 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. 03/1997 Ongoing operations language replaces your work. ISO CG Additional Insured Owners, Lessees or Contractors Scheduled Person or Organization 10/2001 This version of the endorsement adds the exclusion for losses due to the completed operations of the insured. ISO CG Additional Insured Owners, Lessees or Contractors Scheduled Person or Organization This insurance does not apply to bodily injury or property damage occurring after: 1. All work, including materials, parts or equipment furnished in connection with such work, on the project (other than service, maintenance or repairs) to be performed by or on behalf of the additional insured(s) at the site of the covered operations has been completed; or 2. That portion of your work out of which the injury or damage arises has been put to its intended use by any person or organization other than another contractor or subcontractor engaged in performing operations for a principal as a part of the same project. Addtl Insureds & Certificates Rev. 02/10 Page 48

49 07/2004 This 2004 version eliminated the arising out of language of earlier versions. The revision is designed to eliminate coverage for losses due to the sole negligence of the additional insured. ISO CG Additional Insured Owners, Lessees or Contractors Scheduled Person or Organization Section II. Who is an Insured is amended to include as an additional insured the person(s) or organization(s) shown in the Schedule, but only with respect to liability for bodily injury, property damage or personal and advertising injury caused, in whole or in part, by: 1. Your acts or omissions; or 2. The acts or omissions of those acting on your behalf; in the performance of your ongoing operations for the additional insured(s) at the location(s) designated above. Addtl Insureds & Certificates Rev. 02/10 Page 49

50 Additional Insured Owners, Lessees or Contractors Completed Operations (CG ) This endorsement is used in conjunction with the Additional Insured Owners, Lessees or Contractors Scheduled Person or Organization (CG 20 10) endorsement to provide completed operations coverage for the additional insured. (This endorsement is not necessary if the 11/85 edition of the CG is used.) This endorsement modifies the Who is Insured section of the CGL to include the person or organization shown in the schedule, but only for liability caused in whole or in part by the named insured s work ( your work ) at the location designated and described in the schedule performed for that additional insured and included in the products-completed operations hazard. Although this endorsement is available, the insurance company may not be willing to provide this endorsement due to the escalated construction exposures. See online course to view a printable copy of the endorsement form. Addtl Insureds & Certificates Rev. 02/10 Page 50

51 Knowledge Check The additional insured who has coverage under your insured s CG has the advantage of: a. Making a claim to your client to be indemnified for a loss. b. Having access to defense in a claim alleging joint negligence in a loss arising from your client s ongoing operations. c. Making a claim directly to your client s insured company. d. Both B and C The answers is: D Additional Insured Managers or Lessors of Premises (CG ) This endorsement is used to change the Who is Insured section of the CGL to include the owner of the premises that the named insured leases or the owner s real estate manager. It extends liability coverage for the ownership, maintenance, or use of that part of the premises leased to the named insured and shown on the schedule. See online course to view a printable copy of the endorsement form. Addtl Insureds & Certificates Rev. 02/10 Page 51

52 For example, a shopkeeper rents space from a building owner. The building owner requires the tenant, your client, to add him as an additional insured to the client s CGL. The language in the endorsement which makes this change is as follows: 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 the ownership, maintenance or use of that part of the premises leased to you and shown in the Schedule and subject to the following additional exclusions: This insurance does not apply to: 1. Any occurrence which takes place after you cease to be a tenant in that premises. 2. Structural alterations, new construction or demolition operations performed by or on behalf of the person or organization shown in the Schedule. E&O Alert This endorsement does not cover any occurrences that happen after the additional insured moves from the premises. It also excludes coverage for losses due to structural alterations made by (or for) the additional insured. Example A condo association hires a property manager who lives on-site. The association adds the manager as an additional insured to its CGL Policy. If a loss occurs due to the manager s negligence after he has moved away from the premises, the manager cannot seek coverage under the named insured s CGL. In addition, the covered premises are specifically described so it will be necessary to check the tenant s CGL Policy to make sure the location and description of premises are correct. Addtl Insureds & Certificates Rev. 02/10 Page 52

53 Additional Insured Lessor of Leased Equipment (CG ) This endorsement is designed to add a person or entity that leases equipment to the named insured and as a condition of the lease, requires to be added as an additional insured. This endorsement modifies the Who is Insured section of the CGL to include as an additional insured the person or organization shown in the schedule, but only for liability caused in whole or in part by the named insured s maintenance, operation or use of the equipment. This endorsement does not provide coverage for bodily injury or property damage arising from the sole negligence of the additional insured. Example: Your client who owns an office building, contracts with a company to provide coffee equipment and service for the occupants of the building. The coffee service requires your client to add it as an additional insured to your client s CGL Policy for losses related to the leased equipment. See online course to view a printable copy of the endorsement form. Addtl Insureds & Certificates Rev. 02/10 Page 53

54 Additional Insured Vendors (CG ) This endorsement provides insured status under a manufacturer s or distributor s policy to named persons or organizations with respect to their sale or distribution of the named insured s products. This endorsement modifies the Who is Insured section of the CGL to include as an additional insured the person or organization (referred to as vendor) shown in the schedule, but only for liability arising out of your products shown in the schedule and subject to additional exclusions contained in the endorsement. Example Stella manufactures expensive statuary. She has asked JB s Boutique to sell her product. JB s agrees, but wants to be named as an additional insured on Stella s CGL for coverage in case the statuary products cause injury to a third party. If a claim is made against JB s for the defective product manufactured by Stella, Stella s policy would respond on JB s behalf. See online course to view a printable copy of the endorsement form. Addtl Insureds & Certificates Rev. 02/10 Page 54

55 As stated, the endorsement allows for liability coverage only and contains exclusions. There is no coverage for the vendor due to: 1. assumption of liability in a contract or agreement; however, this exclusion does not apply to liability the vendor would have had in absence of the contract or agreement; 2. any express warranty unauthorized by the named insured; 3. any physical or chemical change made intentionally by the vendor; 4. repackaging unless required by instructions from the manufacturer and repackaged in the original container; 5. failure to make inspections, adjustments, tests or servicing as the vendor has agreed to make; 6. demonstration, etc., away from the vendor s premises; 7. products which after distribution or sale by the additional insured have been labeled or relabeled, used as a container, part or ingredient of any other thing or substance by or for the vendor; the sole negligence of the vendor, its employees or anyone working on its behalf. However, this sole negligence exclusion does not apply to (1) repackaging required by the manufacturer; (2) demonstration, installation, servicing or repair operations performed at the vendor s premises in connection with the sale of the product; or (3) inspections, adjustments, tests or servicing the vendor has agreed to make in the usual course of business or in connection with the distribution or sale of the products. E&O Alert Make sure each product for which coverage is desired is listed on the endorsement. Addtl Insureds & Certificates Rev. 02/10 Page 55

56 Knowledge Check Let s go back to the clients previously introduced. Which of these Additional Insured Endorsements would work best for them? Click on each client name to review their situation, then drag the form number to the appropriate box. (This exercise must be completed in the online course.) Easy Tools Easy Tools is a tool manufacturer. Many of the large retail tool stores will not carry Easy Tools products unless Easy Tools names the retail stores as additional insureds on their CGL policy. Myers Printing Meyers Printing leases a $500,000 press from AJK Industries. The lease agreement requires that AJK be added to Meyers CGL as an additional insured so that AJK will be covered by Meyers policy in the event of bodily injury or property damage arising from the printing press. Association of Cars of Years Past The association is hosting a car show at the local fairgrounds. The fairground requires the association to add it as an additional insured to its CGL policy so that they will be covered by the association s policy in the event of a bodily injury or property damage loss to a third party. ABC Janitorial Services Silver Creek Retirement Center has contracted with ABC Janitorial Services to maintain its premises. As part of the contract, ABC is required to add Silver Creek as an additional insured on their CGL policy. If ABC negligently causes bodily injury or property damage, Silver Creek wants to be covered by ABC s policy. The answers are: Easy Tools [CG 20 15] Meyers Printing [CG 20 28] Association of Cars of Years Past [CG 20 11] ABC Janitorial Services [CG 20 10] Addtl Insureds & Certificates Rev. 02/10 Page 56

57 What is a Blanket Additional Insured Endorsement? Learning Objective: Understand why an insured would benefit from a Blanket Additional Insured Endorsement. Each of the additional insured endorsements introduced so far require the additional insured to be listed on the additional insured endorsement. This requires clients to notify their agent about the need to add another additional insured endorsement to their policy. For the contractor, additional insured requests can be numerous. What happens if the client forgets to request the additional insured endorsement for a specific individual or organization as required by a contract? Blanket additional insured endorsements were created as a way to reduce administrative errors and oversights when providing additional insured status. It is used to automatically include persons or entities who require additional insured status under the terms of a business contract with the insured. This reduces the need for the client to request these entities be individually added as additional insureds. For contractors, one solution is the use of the Additional Insured Owners, Lessees Or Contractors-Automatic Status when Required In Construction Agreement With You (CG 20 33) endorsement. This endorsement automatically provides additional insured status when the named insured is required to do so by a construction agreement with that entity. Coverage is provided with respect to liability arising out of the named insured s ongoing operations for that additional insured. This endorsement specifies that coverage automatically ends when the contracted work is complete. Note: If completed operations coverage is required, the entity must be scheduled on the Additional Insured Owners, Lessees or Contractors Completed Operations [CG ] endorsement as previously discussed. The automatic additional insured status does not apply to this endorsement. See online course to view a printable copy of the endorsement form. Addtl Insureds & Certificates Rev. 02/10 Page 57

58 Most blanket additional insured endorsements are non-standard forms; therefore, they vary from insurance company to insurance company. The language of each endorsement should be understood with regard to: The written contracts that are covered; The types of liability the endorsement applies to; and the types of liability the endorsement does not apply to. To avoid an uncovered loss with regard to an additional insured, both the client and the insurance professional should understand the coverage provided by the specific blanket additional insured endorsement being used. Which entities automatically fall within the endorsement language and are therefore covered as well as those that are not covered by the endorsement. Summary We have reviewed the reasons that clients need to add individuals or entities to their CGL Policy as additional insureds, and we have looked at the coverage provided by the most common additional insured endorsements. Addtl Insureds & Certificates Rev. 02/10 Page 58

59 As we saw in Section 1 Introduction, many additional insureds also request certificates of Insurance. In the last section of the course we will review the purpose of certificates of insurance and the importance of accuracy and authority when they are issued by the agency or insurance company. However, we must first look at additional insureds and the Business Auto Policy. Please refer to the end of Section 2 to go over the self quiz. Addtl Insureds & Certificates Rev. 02/10 Page 59

60 Section 3 Additional Insureds & the Business Auto Policy (BAP) While additional insured discussions most frequently revolve around the Commercial General Liability Policy, the Business Auto Policy should not be ignored. There are situations when clients will want or need to expand Who is an Insured on their Business Auto Policy to provide coverage to specific individuals or organizations. Learning Objectives 1. Understand Who is an Insured as defined in the Business Auto Policy. 2. Understand the situations when insured or additional insured status would be required or requested. 3. Discuss the various endorsements that can be used to grant insured or additional insured status to an individual or organization, including the coverage provided by each. The ISO Business Auto Policy CA will be used as reference for this section. See online course to view a printable copy of the endorsement form. Addtl Insureds & Certificates Rev. 02/10 Page 60

61 Who is an Insured? Learning Objective: Understand Who is an Insured as defined in the Business Auto Policy. Before discussing who might need or want to be added as an additional insured, let s first review Who is an Insured in the Business Auto Policy. You may recall the previous discussion regarding three types of insureds. Named Insureds The individual or entity shown on the declarations page. Typically referred to as a you in the policy. The named insured is provided the broadest coverage. Automatic Insureds These individuals or organizations are made an insured by policy language. These parties are typically identified in the Who is an Insured section of the policy. Nothing needs to be done to trigger insured status for these parties; insured status is automatic. Additional Insureds These individuals or organizations can be made an Additional Insured on the policy only by endorsement. The ISO Business Auto Policy coverage form CA will be used as reference in this section. Any individual or organization that falls into any one of these three categories is an insured by definition. Both the named insured and automatic insureds are found here. See online course for Business Auto Policy language defining Insured. Addtl Insureds & Certificates Rev. 02/10 Page 61

62 First Category The named insured, whether an individual, corporation, partnership, LLC or other is an insured for any covered auto. Second Category This category is very broad as it grants insured status to anyone to whom the named insured gives permission to use a covered auto. These are automatic insureds. There are, however, five exceptions that make the following individuals NOT insureds: An employee for an auto owned by that employee or a member of that employee's household. The owner or anyone else from whom the named insured hires or borrows a covered auto. (Unless the auto is a hired or borrowed trailer connected to an auto owned by the named insured.) Anyone in the auto business. (Unless it is the named insured s auto business.) Anyone loading or unloading a covered auto unless an employee, partner (partnership) or member (LLC). A partner (partnership) or member (LLC) for an auto owned by him or her or a member of his or her household. Addtl Insureds & Certificates Rev. 02/10 Page 62

63 Third Category Anyone vicariously responsible for the conduct of an insured in either of the other two categories. These are also automatic insureds. Example Mark is a sub-contractor working on a jobsite when the general contractor asks him if he would run and pick up some materials she needs. Should Mark have an accident while running this errand, the general contractor would be considered an insured under Mark s Business Auto Policy due to vicarious liability. With the Business Auto Policy s definition of insured already broad in scope, who else would want or need to be given insured status on your client s Business Auto Policy? There are situations when other persons or organizations require they be added as an additional insured. For example, additional insured status is typically required in an auto lease contract or it may be required as part of a work contract. Failure to comply would result in not being approved for the auto lease or being turned down for the job. Neither of these is favorable to your client. The named insured may also be the one requesting that a person or organization be given insured status. Addtl Insureds & Certificates Rev. 02/10 Page 63

64 This can only take place if the named insured understands 1. how the specifically excluded individuals removes liability coverage for its officers, partners and employees in specific situations; and 2. the autos that are considered to be covered autos as defined by the policy. Definition of Covered Auto - Business Auto Policy To illustrate this point, let s look at six situations when the named insured may want to give insured status to another person or organization. Problems & Solutions: Additional Insured Endorsement & the Business Auto Policy To finish up Section 3 we will cover two learning objectives together. In the next few pages we will look at situations that create the need for an additional insured endorsement. For each situation, we will then study the appropriate form to attach to the Business Auto Policy, to add an insured and solve the problem. Learning Objective: Understand the situations when insured or additional insured status would be required or requested. Situation #1 Hartley's Fine Furnishings, Inc. is the named insured on a Business Auto Policy. Lloyd is the president of Hartley s Fine Furnishings, Inc. Lloyd does not own any autos titled to him personally, and he does not have a Personal Auto Policy. The auto he drives is owned by Hartley s Fine Furnishings, Inc., and the only auto insurance he has is from Hartley s Business Auto Policy. Addtl Insureds & Certificates Rev. 02/10 Page 64

65 Problem #1 Lloyd rents a car while he is on vacation. He has an at-fault accident. See if you can answer this question. Will Hartley s Business Auto Policy provide Lloyd liability coverage for his accident? The answer is: No Situation #1 Tom is Hartley s top sales person. He drives a company car and has permission for 24/7 use. He does not personally own an auto, so he sees no need for a Personal Auto Policy. Problem #2 Tom has an at-fault accident while driving a friend s car. Tom finds out after the accident that his friend does not have insurance. See if you can answer this question: Will Hartley s Business Auto Policy provide Tom liability coverage for his accident? The answer is: No Addtl Insureds & Certificates Rev. 02/10 Page 65

66 Learning Objective: Discuss endorsements that can be used to grant insured or additional insured status, including the coverage provided by each. Problem Lloyd rents a car while he is on vacation. He has an at-fault accident. Tom has an at-fault accident while driving a friend's car. Tom finds out after the accident that his friend does not have insurance. Business Auto Policy Response The Business Auto Policy will not provide liability coverage for either Lloyd or Tom. Lloyd and Tom are not insureds under the Business Auto Policy because neither was driving a covered auto. A covered auto does not include the use of a non-owned auto (including a rental auto) for non-business use. Solution: Drive Other Car Coverage - Broadened Coverage for Named Individuals (CA 99 10) Click here to view a printable copy of: Drive Other Car Coverage - Broadened Coveraged for Named Individuals (CA 99 10) Solution: Drive Other Car Coverage - Broadened Coverage for Named Individuals (CA 99 10) This endorsement provides coverage for a non-owned auto (similar to that provided by a personal auto policy) for an individual. This individual is typically a corporate officer, partner or key employee who does not own a personal vehicle and does not have a personal auto policy. Who is an Insured is changed to include the individual named in the schedule and his or her resident spouse. While the spouse of the person named in the schedule is automatically included, family members are not. If coverage is wanted for family members, each family member must be listed on the schedule and a premium charged. This endorsement can extend the Business Auto Policy s liability, physical damage, medical payments/personal Injury Protection, Uninsured/Underinsured Motorists and physical damage coverage to the person(s) listed on the schedule; however, each coverage must be selected and a premium charged. Addtl Insureds & Certificates Rev. 02/10 Page 66

67 E&O Alert There is also a personal lines solutions: PP Named Non-owner Coverage, which provides broader coverage that the coverage afforded by CA Click on the Forms Library link on the top menu bar for a copy of PP Situation #2 Danny Clarke dba Lacey Landscaping is the named insured on a Business Auto Policy. Danny owns a small landscaping business. Since all of the vehicles personally owned by Danny and his wife Chris are insured on the Business Auto Policy, Danny and Chris do not have a Personal Auto Policy. Problem #1 Chris is driving her mother s car to take her mother to the grocery store when she has an atfault accident. Her mom carried minimum limits that are insufficient to pay all of the damages. Chris has been sued. See if you can answer this question: Will the Business Auto Policy provide liability coverage for Chris? The answer is: No Situation #2 Danny Clarke dba Lacey Landscaping is the named insured on a Business Auto Policy. Danny owns a small landscaping business. Since all of the vehicles personally owned by Danny and his wife Chris are insured on the Business Auto Policy, Danny and Chris do not have a Personal Auto Policy. Addtl Insureds & Certificates Rev. 02/10 Page 67

68 Problem #2 Chris and Danny's 19-year old daughter Lisa (who lives with them) is driving a friend s car home from a football game. While speeding, Lisa loses control of the car and hits a guardrail. The friend, who was in the car with Lisa, is seriously injured and sues Lisa for her injuries. See if you can answer this question: Will the Business Auto Policy provide liability coverage for Lisa? The answer is: No Problem Chris is driving her mother s car to take her mother to the grocery store when she has an at-fault accident. Her mom carried minimum limits that are insufficient to pay all of the damages. Chris has been sued. Dan and Chris's 19-year old daughter Lisa (who lives with them) is driving a friend s car home from a football game. While speeding, Lisa loses control of the car and hits a guardrail. The friend, who was in the car with Lisa, is seriously injured and sues Lisa for her injuries. Business Auto Policy Response The Business Auto Policy will not provide liability coverage for either Chris or Lisa. Chris and Lisa are not insureds under the Business Auto Policy since neither was driving a "covered auto." A covered auto does not include the use of a non-owned auto for nonbusiness use. Solution: Individual Named Insured Endorsement (CA 99 17) Click here to view a printable copy of: Individual Named Insured (CA 99 17) Addtl Insureds & Certificates Rev. 02/10 Page 68

69 Solution: Individual Named Insured (CA 99 17) This endorsement is added to a Business Auto Policy when o the named insured is a sole proprietor, o all personally owned autos are insured on the Business Auto Policy, and Who o is the an named Insured insured is changed does to not include have the a Personal individual Auto named Policy. in the schedule and his or her resident spouse. Who is an Insured for liability is changed to include the resident spouse of the named While insured the and spouse family of members the person for named any covered in the auto schedule of the is private automatically passenger included, type and family members are not. If coverage is wanted for family members, each family member non-owned must autos. be listed on the schedule and a premium charged. This endorsement turns the Business Auto Policy into a Personal Auto Policy. There is not typically a premium charge for this endorsement. Unlike the Drive Other Car Coverage endorsement, family members are automatically included without being listed. This Unlike endorsement the Drive Other can Car extend Coverage the Business endorsement, Auto Policy s coverages liability, do physical not need to be damage, medical payments/personal Injury Protection, Uninsured/Underinsured individually selected. This endorsement extends liability and physical damage if Motorists and physical damage coverage to the person(s) listed on the schedule; however, physical damage each coverage is provided must for be any selected auto on and the a policy. premium Note: charged. If the named insured is an individual, family members are automatically an insured for medical payments and uninsured/underinsured motorists, without the need for a separate endorsement. Situation #3 Rhodes Insurance, Inc., is the named insured on a Business Auto Policy. The three cars insured on the policy are used by the corporate officers. Rhodes does not provide company cars to any of their employees. Their bookkeeper, Becky, drives her personal vehicle to drive to and from the bank for agency business. Addtl Insureds & Certificates Rev. 02/10 Page 69

70 Problem #1 Becky has an at-fault accident while on the way to the bank. See if you can answer this question: Will Rhodes Business Auto Policy provide Becky liability coverage for her accident? The answer is: No Situation #3 Rhodes Insurance, Inc., is the named insured on a Business Auto Policy. The three cars insured on the policy are used by the corporate officers. Rhodes does not provide company cars to any of their employees. Travis, the owner s son, is employed at the agency as a producer. He uses his personal auto for business regularly. Problem #2 Travis is driving his personal car to a client s office when he has an at-fault accident. See if you can answer this question: Will Rhodes Business Auto Policy provide Travis liability coverage for his accident? The answer is: No Addtl Insureds & Certificates Rev. 02/10 Page 70

71 Problem Becky has an at-fault accident while on the way to the bank. Travis is driving his personal car to a client s office when he has an at-fault accident. Business Auto Policy Response The Business Auto Policy will not provide liability coverage for either Becky or Travis as they were driving vehicles owned by them. Who is an Insured specifically excludes an employee if the auto is owned by that employee or a member of his or her household. Note: The only coverage available to Becky and Travis is the coverage from their Personal Auto Policy. Solution: Employees as Insureds (CA 99 33) Click here to view a printable copy of: Employees as Insureds (CA 99 33) Solution: Employee as Insureds (CA 99 33) This endorsement is added to a Business Auto Policy when This endorsement addresses the exclusionary language that states an employee is not an insured while driving an auto owned by that insured or a member of that insured s Who is an household. Insured is changed to include the individual named in the schedule and his or her resident spouse. Who is an Insured is changed to include employees while using a covered auto the named While the insured spouse doesn t of the own, person hire named or borrow in the in the schedule named is insured s automatically business or personal included, affairs. family members are not. If coverage is wanted for family members, each family member must be listed on the schedule and a premium charged. Employees using their personal vehicles on behalf of the named insured are now insureds for liability. Liability coverage is provided on an excess basis. The employee s personal insurance is primary. This endorsement prohibits the Business Auto insurance company from subrogating against the employee when the employee s negligence is the cause of the loss as the employee This endorsement is now an can insured. extend the Business Auto Policy s liability, physical damage, medical payments/personal Injury Protection, It Uninsured/Underinsured should be noted that this Motorists endorsement, and physical like all endorsements, damage coverage is subject to the to underwriting person(s) listed approval. on the Insurance schedule; companies however, each will typically coverage require must be the selected named insured to and verify a premium that each charged. employee has Personal Auto liability coverage at specified minimum limits such as 100/300/50. Addtl Insureds & Certificates Rev. 02/10 Page 71

72 Situation #4 Alpena Roofing, Inc., is the named insured on a Business Auto Policy. Art, the president of Alpena, leases his personally owned 2009 Mercedes to the business for tax reasons. Problem Art wants the Mercedes to have coverage under Alpena's Business Auto Policy. See if you can answer this question: Is there an endorsement required to provide Art the coverage he needs when adding the Mercedes to Alpena s Business Auto Policy? The answer is: Yes Problem Business Auto Policy Response The vehicle is not owned by the named insured. Solution: Employees as Lessor (CA 99 47) Click here to view a printable copy of: Employee as Lessor (CA 99 47) Addtl Insureds & Certificates Rev. 02/10 Page 72

73 This endorsement is added to a Business Auto Policy when Who is an Insured is changed to include the individual named in the schedule and his or her resident spouse. While the spouse of the person named in the schedule is automatically included, family members are not. If coverage is wanted for family members, each family member must be listed on the schedule and a premium charged. Solution: Employee as Lessor (CA 99 47) This endorsement is used to treat an auto hired, borrowed or leased by the named insured as an owned auto. The auto is described on the endorsement and/or scheduled on the Declarations and is afforded primary liability and physical damage coverage just as if it were an owned vehicle. If an auto is leased from an employee, Who is an Insured is changed to include the employee as an insured for that auto. This endorsement can extend the Business Auto Policy s liability, physical damage, medical payments/personal Injury Protection, Uninsured/Underinsured Motorists and physical damage coverage to the person(s) listed on the schedule; however, each coverage must be selected and a premium charged. Unlike the Employees as Insureds CA 99 33, this endorsement provides primary coverage. E&O Alert If Art does not have a Personal Auto Policy, this is not the only endorsement he needs. He may also need Drive Other Car Coverage - Broadened Coverage for Named Individuals or a Named Non-Owner Coverage to provide coverage for his personal use of non-owned vehicles. Situation #5 Rincon Construction was hired by ADR, Inc., to haul debris from its property. Problem ADR wants to be added to Rincon's Business Auto Policy as an additional insured in the event Rincon has an auto accident while hauling the debris. ADR is already an automatic insured by policy language. We saw previously that Who is an Insured includes: Anyone Responsible for the Conduct of an Insured (Vicarious Liability). However, ADR wants written proof this is true. Addtl Insureds & Certificates Rev. 02/10 Page 73

74 See if you can answer this question: Is there an endorsement available to specifically show ADR as an additional insured on Rincon's Business Auto Policy? The answer is: Yes Problem ADR is already an insured by policy language. However, ADR wants proof that this is true. Can ADR be shown as an additional insured on Rincon's policy? Business Auto Policy Response Yes, an endorsement can be attached to the policy to reflect this status. Solution: Designated Insured (CA 20 48) Click here to view a printable copy of: Designated Insured (CA 20 48) This endorsement is added to a Business Auto Policy when Solution: Designated Insured (CA 20 48) This endorsement was developed to give insurers a way to respond to requests to specifically show a person or organization as an additional insured. Who is an Insured is changed to include the individual named in the schedule and his or her resident spouse. While the spouse of the person named in schedule is automatically included, family members are not. If coverage is This wanted endorsement for family members, allows each family the member insurance must be listed company on the schedule to list and person(s) a premium charged. or organization(s) as an additional insured even though the Who is an Insured provision already grants additional insured status to that person or organization liable for the conduct of an insured. This endorsement does not provide additional insured status or coverage that This wasn t endorsement already can extend there. Business Auto Policy s liability, physical damage, medical payments/personal Injury Protection, Uninsured/Underinsured Motorists and physical damage coverage to the person(s) listed on the schedule; however, each coverage must be selected and a premium charged. Addtl Insureds & Certificates Rev. 02/10 Page 74

75 Situation #6 Berg Industries, Inc., leases several of the vehicles insured on its Business Auto Policy. Problem The leasing company requires Berg to provide liability coverage and to protect its interest in the vehicles. See if you can answer this question: Does the Business Auto Policy automatically provide this protection for a lessor? The answer is: No Problem The leasing company requires Berg to provide liability coverage and to protect its interest in the vehicles. Business Auto Policy Response The Business Auto Policy does not automatically provide this protection for a lessor. Solution: Lessor - Additional Insured and Loss Payee (CA 20 01) Addtl Insureds & Certificates Rev. 02/10 Page 75

76 Solution: Designated Insured (CA 20 48) This endorsement is added to a Business Auto Policy when This endorsement is used to add the owner of a leased auto as an additional insured on Who the is an Business Insured is changed Auto to Policy. include the individual named in the schedule and his or her resident spouse. While the spouse of the person named in the schedule is automatically included, family members are not. If coverage is wanted for family members, each family member must be listed on the schedule and a premium charged. This endorsement also adds the owner of the leased auto as a loss payee. The endorsement defines a leased auto as an auto leased or rented to the named insured under a leasing or rental agreement that requires the named insured to provide direct primary insurance for the lessor. This endorsement can extend the Business Auto Policy s liability, physical damage, medical payments/personal Injury Protection, Uninsured/Underinsured Motorists and physical damage coverage to the person(s) listed on the schedule; however, each coverage must be selected and a premium charged. If the lease does not require direct primary insurance for the lessor, this endorsement will not provide physical damage coverage for the lessor s interest in the auto. Summary Just as with the CGL and all insureds share the same per occurrence limit of coverage, in the Business Auto Policy all insureds share the same per accident limit. Named insureds your clients need to make sure they are willing to share their limits with others. After all, they don t want to find themselves lacking sufficient coverage because they were willing to share their insurance with others. Example: 1. Gimse Golf Supplies, Inc. leases a truck that is insured on a Business Auto Policy with CSL liability limits of $500,000. The policy includes the Lessor Additional Insured and Loss Payee endorsement, which has the truck and lessor shown on the Schedule. 2. While driving the company truck, an employee causes a serious accident. The other party makes a claim against Gimse as the owner of the business, the employee as the driver, and the leasing company as the owner of the truck. 3. Who is an insured on Gimse s Business Auto Policy? Gimse Golf Supplies, Inc. as named insured, employee as automatic insured employee driving a covered auto with permission, and the leasing company as additional insured by endorsement. 4. What is the most the policy will pay on behalf of all three insureds? $500,000 Addtl Insureds & Certificates Rev. 02/10 Page 76

77 Sometimes business decisions made by clients require additional insureds be added to their Business Auto Policy. For example, when leasing vehicles or complying with work contracts. Other individuals are made insureds at your client s discretion. For example, adding liability coverage for employees while driving their personal vehicles for business may be important to some clients and not as important to others. Clients may also request to have their Business Auto Policy act as a Personal Auto Policy for officers, partners, members, or employees who may not have a personal auto and a Personal Auto Policy. It is important for clients to understand the situations when employees and others within the organization are excluded from being an insured. This understanding is usually the result of the insurance professional explaining the potential gaps in coverage and recommending possible solutions. Once clients understand the exclusions, they can make an informed decision as to whether or not to extend coverage from their Business Auto Policy to those individuals. Please refer to the end of Section 3 to go over the self quiz. Addtl Insureds & Certificates Rev. 02/10 Page 77

78 Section 4 Certificates of Insurance In this section we will review certificates of insurance including their purpose, their role in the additional insured process, the importance of accuracy when issuing certificates, the problems when modifying language on the certificate, and the potential for an errors and omissions claim associated with certificates. Learning Objectives 1. Explain the purpose of a certificate of insurance. 2. Explain common misconceptions about what a certificate of insurance does. 3. Understand three possible outcomes from a client s request for a certificate of insurance. 4. Understand the problems associated with modifying the language on an ACORD certificate. 5. Be familiar with each section of the ACORD 25 Certificate of Liability Insurance form. 6. Understand the errors and omissions exposures inherent in the administration of certificates of insurance. 7. Describe the steps in the certificate administration process. The ACORD 25 Certificate of Liability Insurance Edition 2009/09 Many students of this course should be familiar with earlier versions of the ACORD 25, particularly the 2001/08 and 2009/01 editions. We've chosen the 2010/05 edition to study in this course. The cancellation section wording for 2010/05 has been substantially changed compared to the 2009/01 and prior editions. The disclaimers that were formerly located on the backside of the document have been moved to the front. (We will include discussion of these changes in this section of our course.) You may print a copy of the certificate form by clicking on the link below. ACORD /05 Addtl Insureds & Certificates Rev. 02/10 Page 78

79 Up until now, this course has focused on additional insureds and how your client s Commercial General Liability and Business Auto Policies can be endorsed to provide additional insured status to individuals or entities. But what do you need to know about certificates of insurance? Let s begin by reviewing the following: Definition of a certificate of insurance Parties to a certificate of insurance Purposes for a certificate of insurance Common misconceptions related to the purpose of a certificate of insurance What is a Certificate of Insurance? Learning Objective: Explain the purpose of a certificate of insurance. A certificate of insurance is a document that indicates an insured has a certain type or types of insurance in effect at a particular time. It usually serves as proof of insurance in loan transactions or for some other legal requirement. It is a snapshot of the client s insurance coverage that is in force at the time the certificate is issued. Parties to a Certificate of Insurance There are two parties to a certificate of Insurance: the named insured and the certificate holder. Addtl Insureds & Certificates Rev. 02/10 Page 79

80 Rockwell Concrete, Inc., has entered into a contract with MAC Construction, Inc., to do the asphalt work in a new housing development. The contract requires Rockwell to carry at least $1M general liability coverage and to provide MAC with a certificate of insurance. Rockwell Concrete, Inc., has its general liability insurance with Mutual of Puyallup Insurance Company. Who is the insured and who is the certificate holder? Named Insured Rockwell Concrete Certificate Holder MAC Construction Inc. Why a Certificate is Requested Processing requests for certificates of insurance is a common activity in an insurance agency, especially for those that specialize in the construction trade. What is the underlying reason for the request? To offer peace of mind. The certificate holder has relied on the insured s insurance to finance losses that fall within the parameters of the contract. The certificate provides the proof or evidence that the insurance coverage relied upon was in effect when the certificate was issued. To meet the requirements of a contract. Your insured may request you to provide a certificate of insurance because it is required by a contract. The timely availability of a certificate of insurance can result in the insured being awarded a job for products or services, receiving approval for the lease of a building or equipment, or closing on a property loan. In looking at these reasons for a certificate of insurance, it may have occurred to you that a certificate alone may not be sufficient to provide peace of mind or comply with the requirements of a contract. And, that would be correct. A certificate of insurance serves one very specific purpose. It provides the certificate holder with evidence of the insurance coverage in force at the time the certificate is issued. Some insureds, certificate holders, and others do not fully understand that certificates of insurance do nothing more than provide evidence of insurance. Addtl Insureds & Certificates Rev. 02/10 Page 80

81 Let s dispel a few common misconceptions about certificates by looking at what certificates of insurance DO NOT do: Learning Objective: Explain common misconceptions about what a certificate of insurance does. A certificate of insurance does NOT confer or grant any coverage to the certificate holder. A certificate of insurance does NOT confer or grant any rights to the insurance policy to the certificate holder. A certificate of insurance does NOT guarantee notification of policy cancellation to the certificate holder. A certificate of insurance does NOT amend, extend, or alter the coverage provided by the insurance policy or policies listed on the certificate. You might be thinking, Hey, wait a minute. What about that additional insured and the rights granted by the insurance policy to an additional insured? If the certificate holder has also been added to the policy as an additional insured and thereby an endorsement has been added to the policy, the insurance policy conveys coverage and rights to that additional insured. However, those rights are conveyed because the individual or entity is an additional insured and not because the individual or entity is a certificate holder. Hold Harmless/Indemnity Agreement Waivers of Subrogation Additional Insured Endorsements Evidence of Policy Coverage Only Additional insured status on the policy Certificate of insurance Certificate of insurance Certificate of insurance Certificate of insurance Addtl Insureds & Certificates Rev. 02/10 Page 81

82 Knowledge Check A certificate of insurance is a document that confirms the insurance requirements of the contract have been met. The answer is: False; the certificate of insurance simply affirms the insurance coverage that was in place at the time the certificate was issued. Knowledge Check As the agent for Smith, Inc., you issued a certificate of insurance to Hilltop Construction. Smith, Inc. is insured with Midwest Mutual Insurance Company. Who are the parties to the certificate of insurance? a. Smith, Hilltop, and Midwest Mutual b. Smith and Hilltop c. Hilltop and Midwest Mutual d. Smith and Midwest Mutual The answer is: B; Smith, Inc. is the insured and Hilltop Construction is the certificate holder. Contract Review As you can imagine, it is not always easy for clients to understand the insurance-related requirements of the contracts they enter into. As a result, they frequently ask for and expect their insurance agent to review a contract to determine what is needed to issue the required certificate of insurance. Contract review is a topic of debate among insurance professionals. After all, insurance professionals should not practice law without a license. An incorrect contract interpretation could result in an errors and omissions claim being made against them for failing to provide the limits of coverage required by the contract. Some experts recommend that insurance agents should not review contracts for their clients and that clients should instead be encouraged to seek legal counsel for contract interpretation. Addtl Insureds & Certificates Rev. 02/10 Page 82

83 The fact of the matter is, insurance professionals risk losing clients if they do not provide the requested contract analysis. For this reason, other experts say it is okay to review a contract to determine if the current insurance policy (or policies) is adequate to meet the insurance requirements of the contract or to recommend any necessary modifications. This analysis would also determine if the certificate holder is requesting modifications to the standard language on a certificate of insurance. A disclaimer should always be included with any written recommendation. Sample Disclaimer Our agency has, upon your request, reviewed the contract indicated above. Specifically, we reviewed only for insurance requirements. The scope of our review was to determine if the current insurance program which you have placed through our Agency addressed the types and amounts of insurance coverage referenced by contract. We have identified the significant insurance obligations and have attached a summary of the 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 NOTE: This proposed disclaimer should be reviewed by the agency s legal counsel prior to actual use. Addtl Insureds & Certificates Rev. 02/10 Page 83

84 Learning Objective: Understand three possible outcomes from a client s request for a certificate of insurance. A review of the contractual requirements for a certificate of insurance will result in at least one of three determinations: The certificate can be issued without changes to the existing insurance coverage. The certificate cannot be issued as requested as the current insurance coverage is inadequate either in coverage and/or limits. The certificate may not be able to be issued as requested due to the request for modifications to the standard certificate of insurance form. Learning Objective: Understand the problems associated with modifying the language on an ACORD certificate. Most certificate requests are routine and do not require either changes to the policy or modification to the certificate language. When coverage or limits are inadequate, an endorsement to the policy should be made prior to issuing the certificate of insurance. It is important to note that a change to the certificate form itself may NOT be an option. The insurance company may not allow the standardized language on a certificate to be amended or deleted. There are also states that regulate certificate forms. In these states, certificates of insurance that amend, extend, or alter the coverage provided by the insurance policy, form, or endorsement must be filed and approved before they can be used. Addtl Insureds & Certificates Rev. 02/10 Page 84

85 According to ACORD, some states such as Kansas, Kentucky, Minnesota, Missouri, North Carolina, Oklahoma, Texas and Wisconsin require the filing of certificate of insurance forms. Prior to any use of a modified form, approval by the respective state Department of Insurance is required. Example of Statutory Language: Minnesota [60A.39] CERTIFICATES OF INSURANCE Subdivision 1. Issuance. A licensed insurer or insurance producer may provide to a third party a certificate of insurance which documents insurance coverage. The purpose of a certificate of insurance is to provide evidence of insurance coverage and the amount of insurance issued. Subdivision 2. Approval. An insurer or licensed producer shall not issue a certificate of insurance or other document or instrument that either affirmatively or negatively amends, extends, or alters the coverage provided by an approved policy, form, or endorsement without the written approval of the commission. Contract Review Example 1 We'll take a look at a previous example of contract language requiring your client to provide a certificate of insurance in conjunction with other risk transfer requirements. The renter of this equipment agrees to hold Backyard Barbecue Company, Inc. and its staff harmless for any third-party claims which may arise from the use of the equipment. O Malley s Fine Furnishings is celebrating its 50th Anniversary. In conjunction with a big week-long anniversary sale, O Malley s will be serving free hot dogs and burgers. They are renting a large grill from Backyard Barbecue Company, Inc. for this purpose. The agreement includes the hold harmless language indicated below and requires a certificate of insurance for general liability coverage providing limits of at least $500,000. As the agent, you would do the following: 1. Make sure O'Malley's general liability limits are at least $500, Issue the requested certificate of insurance. See course for the completed certificate of insurance Addtl Insureds & Certificates Rev. 02/10 Page 85

86 Knowledge Check Note that Backyard Barbecue did not request to be added as an additional insured. Which statement is true? a. Since Backyard Barbecue is a certificate holder, it automatically becomes an additional insured. b. Backyard Barbecue will be a certificate holder with no coverage or rights conveyed from O Malley s insurance policy The answer is: B; a certificate of insurance does not make the certificate holder an additional insured. As discussed in Section 2, an additional insured must be added to the CGL by endorsement. Contract Review Example 2 Now we will study an example of a certificate request that requires modification of the policy. A publishing company has entered into an agreement with a janitorial services company to have its office buildings cleaned on an ongoing basis. Requirement 1: Commercial General Liability limits of at least $1,000,000 The publishing company requires that the janitorial service carry bodily injury and property damage liability insurance in the event of an injury or damage to a third party. The required CGL limits are $1,000,000. Requirement 2: Business Auto Limits of at least $1,000,000 Because the janitorial service will arrive and unload equipment in automobiles and trucks, the publishing firm requires that they also carry Business Auto Coverage. The required BAP limits are $1,000,000. The insured carries $500,000 liability on both the CGL and Business Auto Policy. The agent needs to request an endorsement increasing the limits on both of these policies to at least the $1,000,000 limit required. Once the new limits are effective, the agent can issue the certificate of insurance, as the client s insurance coverage now meets the requirements of the contract. See the course for the sample certificate for this example. Addtl Insureds & Certificates Rev. 02/10 Page 86

87 Contract Review Example 3 Your insured may be signing a contract with requirements that are more difficult to meet than the two previous examples. Kendzioski Enterprises, Inc. is leasing equipment from ABC Systems, Inc. Click on the link in the course to see the Equipment Lease and locate the insurance requirements. We've highlighted areas of our sample contract that address insurance requirements. This contract requires Kendziorski Enterprises, Inc. to: 1. Be responsible for any and all damage to the equipment 2. Maintain all risk insurance on a replacement cost basis, naming ABC Systems, Inc. as a loss payee 3. Obtain liability insurance with limits acceptable to ABC 4. Provide ABC with 30 days notice in the event of cancellation, change or modification of the insurance 5. Add ABC as an additional insured 6. Hold Harmless and indemnify ABC for any liability arising out of the use of the equipment 7. Provide ABC with a certificate of insurance Click on the link in the course to see the Equipment Lease with Insurance Requirements highlighted. Let s look at the contractual requirements to determine whether or not the client s current insurance program provides the requested coverage. Addtl Insureds & Certificates Rev. 02/10 Page 87

88 Property This contract requires all risk property coverage. While the property policy currently provides Causes of Loss Special Form, on a replacement cost basis, coverage is not all risk. ABC can be added as a loss payee. Liability Kendziorski's policy provides limits of liability that meet what is required by the contract. Based on past experience, you know the insurance company would have no problem adding ABC as an additional insured. Cancellation Notification The contract requires 30 days notice not only for cancellation, but also for any change or modification to the insurance policies. Cancellation notice for non-payment of premium is 10 days in your state. This is far short of the 30 days required by the contract. Additionally, the cancellation provisions of the CGL Policy do not require the insurance company to send a notice of cancellation to either certificate holders or additional insureds. To meet the cancellation requirement of the contract, the standard language in the cancellation section of the certificate of insurance would have to be modified. Your client s insurance companies do not allow for this type of modification to certificates. Summary of Contract Review Example 3 As you will see shortly, the certificate language states, "SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION DATE THEREOF, NOTICE WILL BE DELIVERED IN ACCORDANCE WITH THE POLICY PROVISIONS. There is no standardized endorsement to provide for the notification requirements requested and the insurance company is not filed for manuscript endorsements of this type. Therefore, you would not be able to modify the certificate language to meet this contract requirement. Note: According to ACORD, some states such as Kansas, Kentucky, Minnesota, Missouri, North Carolina, Oklahoma, Texas and Wisconsin require the filing of certificate of insurance forms. Prior to any use of a modified form, approval by the respective state Department of Insurance is required. Addtl Insureds & Certificates Rev. 02/10 Page 88

89 E & O Alert Sample wording to accompany a certificate when the certificate holder's requirements could not be met: A CERTIFICATE OF INSURANCE HAS BEEN ISSUED ON BEHALF OF. PLEASE TAKE NOTE OF THE FOLLOWING: (1) the insurance company does not allow waiver of subrogation on (policy number and title) OR (2) Due to filing requirements of the Department of Insurance, the insurance company is only permitted to use endorsement. (when 11/85 edition is requested for example) OR (3) The insurance company does not allow for the modification of the cancellation provision of a certificate of insurance. OR (4) All risk property coverage is not available. You endorse the property policy to add ABC as a loss payee and you add ABC as an additional insured to the CGL. You issue the certificates of insurance; however, they do not include the contract's cancellation requirements. You advise the client that you are unable to comply with the cancellation requirements. The insured likely signed the agreement and already has the leased equipment. The fact is, he has assumed a responsibility for damage to the equipment for which he is not able to secure insurance to finance a loss, should one occur. See course for sample certificate for this example. The insured may also be found in breach of contract by the insurance company not providing a certificate of insurance that amended the required number of days notice for either cancellation, or change or modification to the policy. Addtl Insureds & Certificates Rev. 02/10 Page 89

90 Clients don't always ask for a contract review. Often the lease agreement is signed by the client without the consultation of the agent. Only after the contract is signed does the agent see it. The client should always be asked the purpose of the certificate. As we have seen, if the certificate is due to a contractual requirement, coverage modifications may be needed on the existing insurance policy or policies. Contract Review Example 4 Cole Pablo asked his agent to issue a certificate of insurance to his landlord, Monte Junkert Properties. The requested certificate is issued. After a loss, it is discovered that Cole s lease required him to add Monte Junkert Properties as an additional insured. Cole s failure to do so creates a breach of contract based on the contract language shown below. These certificates and the insurance policies required by this paragraph shall contain provisions stating that the Monte Junkert Properties shall be named as an additional insured thereunder and that the policies shall apply on a primary basis. If the insurance agent had asked the reason for the certificate being requested, the agent might have become aware of Cole's additional insured requirement. As we have seen, a contract requiring a certificate of insurance may also contain other insurance requirements. ACORD 25 Certificate of Liability Insurance Learning Objective: Be familiar with each section of the ACORD 25 Certificate of Liability Insurance form. In the next few pages you ll go through the ACORD 25 Certificate of Liability Insurance form (2010/05 Edition). The ACORD guidelines are the foundation of best practices with respect to issuing a certificate of insurance and will be followed during this section. Some insurers may have special instructions for the preparation of certificates. For example, the carrier may not allow the agent to issue the certificates of insurance; they may have to be issued by the surplus lines broker. Addtl Insureds & Certificates Rev. 02/10 Page 90

91 The certificate holder is relying on the certificate to accurately represent the coverages provided by the insured s policy or policies. Certificates of liability insurance should only be issued if the insurance company has given the agency actual authority to do so. Top Section of Certificate The first section of this form includes the date field and two important disclaimers. Click on each heading in the yellow box for further explanation. 1. Date Field As the form requests, insert the date the certificate is issued. The date issued is important because this form is a snapshot of the in-force insurance as of that date. By issuing a certificate, you are only representing the insurance your customer has in effect on that day. 2. First Disclaimer This is the first of three disclaimers on the certificate. The purpose of this disclaimer is to warn the holder that he or she will not receive any rights under the policy as a result of the issuance of the certificate. The certificate documents coverage which already exists under the policy. It does not grant coverage to the certificate holder. Addtl Insureds & Certificates Rev. 02/10 Page 91

92 3. Second Disclaimer The second information box is a reminder that if the certificate holder is an additional insured, the policy must be endorsed accordingly. Additionally, if subrogation is waived, an endorsement may be required. The certificate does not grant either additional insured status or provide a waiver of subrogation to the certificate holder. Also on the top section of ACORD 25, agency, agency contact, insured and insurance company information. 4. Producer/Agency Contact Information Field Enter the issuing agency name, include address and phone number. Note that the contact information on the right half of the section is for the agency contact person. 5. Insured Information Field Include the first named insured s name(s), whether individual partnership, limited liability company, or corporation, who is offering the evidence of insurance. Include the full address. Be sure the name you show is actually a named insured on the declarations page, or a separate named insured endorsement. Do not name any additional insureds here. 6. Insurers Affording Coverage Field Use the exact name of the insurance company and do not list wholesalers or brokers. Do not list group names. Addtl Insureds & Certificates Rev. 02/10 Page 92

93 Don't overlook the disclaimers. The first disclaimer reinforces the fact that the insurance policy is a contract between the insured and the insurance company. A certificate holder is NOT a party to the insurance policy contract. This language also reinforces the fact that the coverage afforded by the insurance policy is not changed by the certificate of liability insurance. Any modifications to the insurance policy required by the contract need to be made by endorsement; the certificate does not serve this purpose. Earlier editions of the ACORD 25 contained these disclaimers; however, they were located on the backside of the certificate. Coverage Section of Certificate The Coverages Section begins with a disclaimer which states that the coverages listed are: independent of any contract related to the certificate request, such as an indemnity agreement that your insured may have signed, subject to exclusions, conditions and terms of the policy, and subject to limits of liability which may have been depleted. A contract between the insured and the certificate holder is considered a separate contract from the insurance policy. Although a contract may obligate the insured to alter the insurance policy, no such obligation applies to the insurance company. Addtl Insureds & Certificates Rev. 02/10 Page 93

94 Several court cases have a bearing on certificates of insurance. Pekin Insurance Co. vs. American Country Insurance Company Pekin Insurance Co. vs. American Country Insurance Company (1991) The case arose from a dispute over the policy exclusion and the certificate of insurance issued for the roofing company insured. The general contractor argued that since there was a conflict between these two documents, they were ambiguous and coverage should be afforded. The court rejected this argument. The general contractor (additional insured) and its own insurer (plaintiff) argued that there was some ambiguity in the certificate because it implied coverage that was not provided. However, statements in the certificate advised that the policy must be examined to determine the nature and extent of coverage. The court concluded that it was the general contractor s duty, not the subcontractor s CGL insurer s duty, to determine whether this coverage was adequate for the intended purpose. Note: ACORD certificates should only be issued in compliance with company instructions T.H.E. Insurance Company vs. Wally Naghtin, et al. T.H.E. Insurance Company vs. Wally Naghtin, et al. (1990) Wally Naghtin operated a travelling bear show. On March 5, 1988, an incident occurred at a mall, which is owned and operated by Mansfield Square Ltd., dba Kingsgate Mall. The incident occurred one hour after one of Naghtin's theatrical bear performances and involved the alleged injury of members of two families during a photo opportunity with a seven year old adult bear named Fluffy. The family members filed suit in state court against Naghtin and Mansfield. Naghtin s one million dollar general liability policy covered "Bears in Cages Display, Bear Acts, Photos with Bear Cubs." The insurance company denied coverage as the injury resulted from a photo opportunity with an adult bear and not with a bear cub. Prior to the March 1988 performance at Kingsgate Mall and at the request of Naghtin's booking agent, Naghtin s insurance agent issued a certificate of insurance to Kingsgate, stating that Naghtin had one million dollars of insurance coverage for "Animal Display, Photos, etc. (Goldi-Locks & the Bears)." Addtl Insureds & Certificates Rev. 02/10 Page 94

95 (T.H.E. Insurance Company vs. Wally Naghtin, et al. (1990) continued) Two disclaiming statements appeared on the face of the certificate: 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 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. Apparently relying on the certificate, an employee of the mall contracted for Naghtin's show to appear there March 2-6, The district court held that Naghtin s policy did not cover the March 5 incident because it did not cover photo opportunities with adult bears. The court held that the certificate did not stop the insurance company from denying coverage to Naghtin. Only Mansfield appealed. On appeal, the courts found that under Illinois law the certificate of insurance was not evidence of policy coverage for photo opportunities with adult bears because the certificate clearly stated that it was subject to the terms of the policy. The judgment of the district court was affirmed. Addtl Insureds & Certificates Rev. 02/10 Page 95

96 1. INSR LTR Field Enter the company letter from the insurer list in the first section under INSURER(S) AFFORDING COVERAGE. Put and X in each box corresponding to the coverage provided by that insurer. 2. ADDL INSR/SUBR WVR Fields X the ADDL INSRD box if the certificate holder has been named as an additional insured for that coverage. If the certificate holder was named as an additional insured for both general liability and auto liability, both boxes would be X d. X the SUBR WVR box if a waiver of subrogation endorsement in favor of the certificate holder has been added to the policy for that coverage. 3. Policy Number Field Make sure these fields reflect what is printed on the policy. If the policy has been ordered and bound, but is not yet issued, show Policy Number Pending Issuance of Policy or Binder # and mark the insured s file to reissue the certificate when the policy comes in. Make sure you identify the binder as a binder. 4. Policy Date Fields Show the policy period effective date and the policy expiration date, do not show binder dates. Addtl Insureds & Certificates Rev. 02/10 Page 96

97 Description of Operations/Locations/Vehicles This area is located at the bottom of the coverages section. The example shows an entry for a location and a description of operations, and how to describe a referenced endorsement. E&O Alert While care should be taken that all of the information on the certificate is correct, extra caution should be taken when completing this section, especially the Limits field. Make sure there isn t an extra 0 somewhere. Be sure the limits indicated on the certificate match the actual limits on the policy or policies. Certificate Holder Section of Certificate The name and address of the certificate holder is shown in this section. This is always a good time to make sure that if additional insured status is required by the certificate holder, a request has been sent to the insurance company requesting the appropriate additional insured endorsement. Addtl Insureds & Certificates Rev. 02/10 Page 97

98 Cancellation Section of Certificate As you can imagine, this section of the certificate is very important to the certificate holder. After all, the certificate holder is relying on this insurance being in force in the event of a loss. This is also the section of the certificate that certificate holders frequently ask to have amended. The Cancellation wording changed significantly with the 2009/09 edition of this form. In fact, it was the most substantive change made. The basis for the change in the cancellation notification language was regulatory in nature, with the new wording required in many states. 2009/01 Edition Compare it with the 2009/09 Edition. This is identical in the 2010/05 Edition. 2009/09 Edition The cancellation section of the 2009/09 and the 2010/05 ACORD 25 does not require information to be filled in. It clearly refers the certificate holder to the policy's cancellation provisions. Addtl Insureds & Certificates Rev. 02/10 Page 98

99 With this language, the insurance company is only obligated to provide notice of cancellation as required by the policy language. Liability insurance policies typically require the insurance company to send a notice of cancellation to the First Named Insured only. Common Policy Conditions language (IL ) COMMON POLICY CONDITIONS IL A. Cancellation 1. The first Named Insured shown in the Declarations may cancel this policy by mailing or delivering to us advance written notice of cancellation. 2. We may cancel this policy by mailing or delivering to the first Named Insured written notice of cancellation at least: a. 10 days before the effective date of cancellation if we cancel for nonpayment of premium; or b. 30 days before the effective date of cancellation if we cancel for any other reason 3. We will mail or deliver our notice to the first Named Insured s last mailing address known to us. 4. Notice of cancellation will state the effective date of cancellation. The policy period will end on that date. 5. If this policy is cancelled, we will send the first Named Insured any premium refund due. If we cancel, the refund will be pro rata. If the first Named Insured cancels, the refund may be less than pro rata. The cancellation will be effective even if we have not made or offered a refund. 6. If notice is mailed, proof of mailing will be sufficient proof of notice. Addtl Insureds & Certificates Rev. 02/10 Page 99

100 The insurance company is not obligated to notify (or even endeavor to notify) a certificate holder of cancellation if the policy language itself does not require such notice. Even if the certificate holder was endorsed as an Additional Insured to the policy, notice of cancellation to an Additional Insured is not typically required by policy language. (Manuscript endorsements or company specific endorsements may provide for notice of cancellation to an additional insured. In these situations, the additional insured would receive notice of cancellation as it would be in accordance with policy provisions.) Remember the previous discussion about requests by certificate holders to change the language on a certificate of insurance. Not only may insurance companies refuse to allow a change, many states prohibit changes to the certificate (including strike outs, additional words, or deleting words) unless the amended certificate has been filed with the department of insurance and approved for use. The Cancellation Section of the earlier editions of the ACORD 25 Certificate of Liability Insurance was a source of problems for many insurance professionals. As you may continue to see the previous edition or receive requests for the previous edition, we need to look at two common requests by certificate holders for modification of the cancellation wording and the requested number of days for written notice of cancellation. Example 1: Strike out endeavor to Under a certificate request, the insurance agency or company is often asked to strike out the word "endeavor" and/or the words "failure to do so shall impose no liability of any kind upon the insurer, its agents or representatives." If endeavor is struck out, the certificate obligates the insurance company to mail written notice to the certificate holder. Again, as previously discussed: insurance companies will not usually permit the agency to amend the certificate language in this way without their permission. Any modifications should be approved, in writing, by a representative of the insurance company; this is usually the underwriter. Several states prohibit amending the language on the certificate without the certificate first being filed with the department of insurance and approved for use. Example 2: Add material changes wording Another change that may be requested is to add the words material changes to the policy to the cancellation section. This language would require the insurance company to give the certificate holder notice not only of a cancellation, but also if there is a material change to the policy. Addtl Insureds & Certificates Rev. 02/10 Page 100

101 Again, the insurance companies may not allow the modification, and several states prohibit amending the language on the certificate without first filing the certificate form with the department of insurance and obtaining approval for use. Example 3: Require 45 days notice of cancellation The certificate holder may request more days notice of cancellation than provided for by policy language. For example, the certificate holder requires 45-day notice of cancellation, yet the policy language may contain a 10-day notice for cancellation due to non-payment of the premium and a 30-day notice for all other cancellations. The certificate does not change the policy s cancellation provision and unless the underwriter is willing to endorse the policy accordingly, the certificate should not be issued without the approval of the underwriter. An agency issuing a certificate with a 45-day notice of cancellation, without first getting the approval of the underwriter, is assuming that obligation. CANCELLATION (ACORD /01 Edition and prior) SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION DATE THEREOF, THE INSURER AFFORDING COVERAGE 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. E&O Alert If using the older edition of the ACORD 25 Certificate of Liability Insurance, the reverse side of the certificate should be included, as it contains the required disclaimers. Remember, many states prohibit changes to the certificate (including strike outs, additional words, or deleting words) unless the amended certificate has been filed with the department of insurance and approved for use. Addtl Insureds & Certificates Rev. 02/10 Page 101

102 Representative Section of Certificate This is the easiest section of them all the signature of the agent or broker. Completed Certificate The Certificate of Insurance has been thoroughly and accurately completed. The certificate holder and insured have been sent their copies, and the client s file has been documented that the certificate was issued and a copy placed in the client s electronic or paper file. A copy should also be sent to the insurance company or companies shown on the certificate. Addtl Insureds & Certificates Rev. 02/10 Page 102

103 Sending the Certificate to the Insurance Company Over the past few years, many insurance companies have instructed their agents NOT to send them the certificates of insurance. Contrary to these instructions, a leading writer of insurance agent errors and omissions has instructed agents to continue to send copies of certificates to the insurance company, regardless of whether the insurance company wants them. Once receipt of the copies is confirmed, an insurance company cannot claim ignorance and the agency might have an additional avenue for recovery should a claim occur". ACORD 24 Certificate of Property Insurance The Certificate of Property Insurance is used to provide evidence of property insurance to the certificate holder, which is often times a lien holder, loss payee or mortgagee. Just as with the ACORD 25 Certificate of Liability Insurance, this certificate does not convey any rights upon the certificate holder nor does it amend, extend or alter the coverage afforded by the policies. Knowledge Check The insured actually carries $2M CGL. The contract only requires $1M. What limit should be shown on the certificate? a. $1,000,000 b. $2,000,000 The answer is: B Knowledge Check The name to fill in under the INSURED section of the ACORD 25 Certificate of Liability insurance is: a. The additional insured requested by the certificate. b. The entity requesting proof the insurance is in force. c. The named insured listed on the policy shown on the certificate. d. The certificate holder s insurance company. The answer is: C Addtl Insureds & Certificates Rev. 02/10 Page 103

104 Knowledge Check The cancellation notification field on the ACORD 25 Certificate of Liability form should reflect the cancellation notification period requested by the certificate holder. The answer is: False Knowledge Check Which one of the following does NOT illustrate a common request to modify a certificate of insurance? a. Strike through the cancellation notice wording endeavor to b. Change the number of days of advance notice of cancellation c. Enter the endorsements referenced by the certificate under the Descriptions field on the certificate d. Require notification of a material change in coverage The answer is: C Problems with Certificates Learning Objective: Understand the errors and omissions exposures inherent in the administration of certificates of insurance. A certificate of insurance is a form or document issued by or on behalf of the insurer, which shows a third party (other than the insurance company and the insured) that an insured has a certain type and amount of insurance coverage on the date the certificate is issued. The certificate of insurance serves solely as proof of insurance - remember, a snapshot of the coverage in force at the time the certificate was issued. The two major reasons for problems with certificates are: 1. Inaccuracies when entering policy dates, numbers, limits, and carrier information. 2. Failing to request endorsements to the policy which are represented on the certificate. Addtl Insureds & Certificates Rev. 02/10 Page 104

105 E&O Risks Certificates, by their nature, subject the insurance professional to errors and omissions claims. We will soon see that standardized procedures for certificate issuance can help an agency reduce the likelihood of an unhappy insured, certificate holder and/or insurance company. And, happy insureds, certificate holders, and insurance companies are less likely to make an errors and omissions claim against the agent. A certificate is issued with a typo on the policy effective dates. The certificate is rejected by the certificate holder and the insured is delayed in starting the job for his customer. A certificate of insurance is issued for an insured but the required limits of liability are not obtained. No one followed up with the insured to suggest an increase to the limits on the policy. The insured loses the job with his customer because he did not meet the insurance requirements. Addtl Insureds & Certificates Rev. 02/10 Page 105

106 A CSR issues a certificate of insurance noting completed operations liability coverage for her insured, an excavating company. However, she makes the assumption that the insurer offers this type of coverage for her insured s class of risk. In fact, there is no coverage. She issued the certificate outside of insurer s guidelines. A policy holder requests a certificate of insurance which requires an additional insured endorsement. The agency issues the certificate with the endorsement noted, but fails to follow up with the insurer and actually amend the policy. A loss claim follows later. When the failure is discovered, the insured files an E&O claim against the agency. ACORD guidelines for certificates state that certificates should not be used to accomplish any of the following: 1. To waive rights. Waiver of subrogation rights is a frequent requirement with certificates. Your customer may have agreed to this, but the Certificate of Insurance is not for recording this agreement. The certificate can provide information about waiver of subrogation only if that provision is reflected in the policy. 2. To quote a contract between the policy holder and others. Your insured may have agreed to keep the insurance in effect for three years after he completed this job. Because this agreement is in his service contract, the certificate holder may demand similar wording on the certificate. However, the certificate should not be used to reference a clause in a contract. 3. To attach an endorsement amending, altering or extending coverage. The certificate holder wished to be added to your insured s policy as an additional insured. The insurance company must agree to endorse the policy before granting permission to issue the certificate. Addtl Insureds & Certificates Rev. 02/10 Page 106