Texas Gov. Rick Perry in mid-June signed a measure backed by agents groups that requires regulatory approval of property and casualty certificate of insurance forms provided to insureds as proof of insurance coverage.
The governor also signed a bill requiring staff leasing firms and professional employer organizations (PEOs) to provide workers’ comp loss information to employer clients in a timely manner.
Both pieces of legislation were important to independent agents, who worked hard for their passage.
Certificates of insurance are widely used in commercial insurance and agents traditionally have been asked to provide the certificates to insureds and interested parties. As a result agents are often brought into disputes over policy terms and coverages because of language contained in the certificates.
Under Senate Bill 425, only certificates approved by the Texas Department of Insurance may be issued to an insured. The bill allows for both a fee for filing a certificate with the department and penalties for noncompliance.
House Bill 625 clarifies and standardizes the responsibilities of PEOs with regard to the release of workers’ comp loss information to employers.
The Independent Insurance Agents of Texas strongly supported both bills and worked with various stakeholders to help craft the legislation.
IIAT Executive Director David VanDelinder said the problem with certificates of insurance is that agents were being asked more and more frequently to certify issues that, because agents are not attorneys, they could not make a judgment on. Additionally, they were often asked to certify coverage that did not exist.
“Certificates are supposed to be simply evidence that there’s insurance in place to protect a third party that may be relying on that insured for some work that’s being done,” VanDelinder said. “So it’s basically a message to a third party that there is insurance in effect when you need it.
“What the third party started doing over time, however, is trying to get the certificates to replace the insurance policy by guaranteeing certain things would be true. For instance, they might have a contract with that insured that requires them to indemnify or protect that third party. And they want the certificate to say that this protects me in that situation. So it went way beyond the typical certificate, which says I’ve got liability coverage and this limit. And not only that, but it’s going to respond to this situation.”
In these types of situations, agents “had no leverage,” he said. “We pretty much had to sign some of these certificates because our insured couldn’t work the next day if he didn’t produce a certificate of insurance.”
He said the legislation addresses those issues by requiring all certificate of insurance forms to be approved by the Department of Insurance. If a third party wants to use a non-standard form, rather than for instance an Acord or ISO form, that entity must file it with the department and wait for approval.
“As a practical matter in other states where this has been done, a lot of time those third parties that have had these non-standard certificates simply say ‘OK we’ll just take the Acord form or we’ll take one of these standard certificates.’ And that’s really what we would prefer,” VanDelinder said.
He said in helping to craft the legislation, the IIAT worked with various stakeholders —such as general contractors, the oil and gas industry and municipalities, “to make sure that everyone was clear in what we were trying to accomplish. One of the reasons the bill passed is that we had the people most affected by it on board with the legislation.”
Still, the department’s implementation of the bill will greatly influence its effectiveness. “We will be close to the process and hopefully engaged in providing advice to them about some of the rules that should exist,” VanDelinder said. “But ultimately, it’s going to be the experts at TDI that review these forms and approve them or disapprove them.”
Workers’ Comp and PEOs
Van Delinder said the reluctance of some PEOs to provide loss information to their employer customers impeded agents’ ability help those employers find workers’ compensation insurance outside of the PEO.
The problem came to the attention of the IIAT when a Houston agent was trying to shop workers’ compensation insurance for a client but the business was unable to get the loss information it needed from a staff leasing firm. “So when they went out to shop they had to say to the insurance company I don’t have any loss information,” Van Delinder said. “It’s very hard to get workers’ comp without that data.”
“For years we’ve had a law in the statutes that said if a customer wants workers’ comp loss information and requests that of his insurance company, that company has to provide that within 30 days,” VanDelinder said. But PEOs were exempt from that requirement.
He said while most PEOs would ultimately provide the information, some would not. HB 625 “simply corrects that situation and makes it clear that if you are outside or inside a PEO, if you’re an employer, you have access to that loss information,” VanDelinder said.
He added that PEO professional organizations were in favor of standardizing the requirements and were instrumental in drafting some of the language in the bill.
Listen to the podcast interview with the IIAT’s David VanDelinder regarding the certificate of insurance and PEO legislation at: http://www.insurancejournal.tv/videos/5665/.