How is it that a certificate of insurance — that seemingly simple, straightforward and most innocent of documents — can be so complex?
The certificate of insurance acknowledges the writing and existence of an insurance policy. It should accurately reflect the coverage provided by a specific policy and be aligned with, for instance, a complementary written contract setting out an insured’s insurance requirements.
In a perfect world, every contract and corresponding certificate of insurance would be reviewed by the insured’s attorney, who would advise regarding the changes necessary for the insured’s actual insurance coverages to be in compliance with the requirements of the contract. This information would then be communicated to the insured’s broker, who would obtain the appropriate coverage.
In the real world, this doesn’t always happen. Attorneys may be engaged later in the process — or not at all.
How then do we as brokers best serve our clients? By considering a few best practices.
When a client does not engage its attorney to review and compare the conditions of the coverage with the exposures of the contract, the next best scenario is the client sending the insurance provisions in the contract to his or her insurance broker for review.
In such cases, often the same person charged with issuing the certificate of insurance is asked to perform the initial contract review. Under such circumstances, it may be helpful if a second set of eyes with greater expertise reviews the initial analysis.
Once completed, communication can occur with the client on such items as: additional insured wording (type and form); waivers of subrogation; primary and noncontributor wording; notice of cancellation provisions; coverage deficiencies; and coverages not available in the market.
To avoid any doubt, it is advisable that the insurance broker make clear to the client that he or she is not providing legal advice. Having discussions with clients about the scope of the broker’s review protects both clients and brokers.
There are times, all too frequent, when clients dangerously enter into a contract that has not been reviewed by either an attorney or an agent/broker. Consequently, brokers may either find out that a fully executed contract exists when they receive a request for a certificate of liability insurance or when they actually receive the executed contract.
In the first case, a broker, unaware of the contract terms, may issue a certificate to the insured describing the actual coverage, only to receive a rejection due to noncompliance with contractual language. Normally the insured then shares the contract with the broker, and the broker is able to identify where deficiencies exist and then attempt to align the policy language, coverage and limits with what the insured has agreed to contractually.
When dealing with these seemingly “benign” documents, clients should consider retaining the services of a qualified attorney. When that’s not possible, they should provide their broker with the insurance language in the proposed contract for review. Brokers may determine how a client’s current insurance program matches up with the contract requirements.
Adhering to best practices in contract and certificate of insurance reviews may help mitigate risk and prevent unpleasant surprises.
Titus is managing principal with Integro. He specializes in applying a risk management approach to middle-market and complex private clients.
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