A common practice by insurance carriers is to inform their agents that they should not send the company copies of certificates of insurance when they are issued. This is most likely the result of mail-flow issues with the carrier’s underwriting departments, many of which are now becoming “paperless” … not to mention that the task of naming and filing certificates into a computer system is cumbersome.
That leaves the agent with the responsibility of issuing and filing certificates. However, if a copy is never sent to the carrier, the carrier can hide behind a “shield of ignorance” if a problem arises, by stating that it knew nothing about the certificate. In effect, the practice of refusing certificates can place a carrier in a better defense posture when a claim is made, based on misrepresentations on a certificate. Also, the defense of an agency can be weakened when a carrier claims ignorance.
A Common Pattern
Certificates of insurance can and will be the basis of claims against agencies. Although there is language on a certificate that in effect states the certificate does not constitute a contract between the parties — nor does it amend, extend or alter coverage under the policies listed — claims are made and suits are filed based on representations on certificates.
A common pattern involves an entity (who is not party to an insurance contract) that receives a certificate of insurance from an agency’s client as a condition before business is conducted with the client. If the information on the certificate is incorrect, it leads the party doing business with an agency’s client to believe there is coverage.
However, when it is discovered there is no coverage — and the party must pay for, or suffers, a loss — a claim can be made against the agent based on the theory of detrimental reliance. It will be claimed that had the party known there was no coverage, it would not have done business with the agency’s client and, therefore, would not have suffered a loss.
A Misunderstood Request Leads To…
Consider a claim by a bank that loaned money to a golf course for the purchase of GPS devices to be used in golf carts. As part of the loan agreement, the bank wanted proof that there was coverage for the GPS devices. The agency’s customer service representative who handled the client’s request to provide proof of coverage misunderstood the request, thinking she was asked to provide proof of coverage for the carts. A fire occurred at the course’s main storage facility resulting in the loss of all of the golf carts and GPS devices. The carrier paid for the carts, but paid nothing for the GPS devices because they were not covered. The bank sued the agency, alleging that it would not have loaned the money if it knew there was no coverage for the GPS devices. The claim against the agency was settled for about $50,000.
Agencies should be aware of the pitfalls involved in sending out certificates of insurance that are inaccurate. For example, if an agency sends a certificate to a client that lists another party as an additional insured, the agency must be certain that the party is listed on the policy. If this requires a change endorsement to be sent to the carrier, send it. Even if the carrier is sent a copy of a certificate, do not expect it to add a party without a specific request to do so. A certificate is not the proper vehicle for the request.
Agencies also need to be familiar with certain types of vendor’s coverage or blanket additional-insured endorsements before stating a party is an additional insured. Not all parties or actions will trigger coverage under either a vendor’s endorsement or an additional-insured endorsement. If in doubt, call the carrier for an interpretation before a certificate is issued. It is important, too, to never issue a certificate as a favor to an insured without knowing that the information stated on the certificate is accurate. When a lawsuit ensues as a result of inaccurate information on a certificate, all fingers will be pointed at the agency, especially if the carrier knows nothing of the certificate.
It is advisable to send copies of certificates to the carrier, regardless of whether the carrier wants them. Once receipt of the copies is confirmed, a carrier cannot claim ignorance — and the agency might have an additional avenue for recovery should a claim arise.
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