Random Thoughts About Certificates of Insurance and Related Topics

The contracts your insureds enter into often create an additional workload for your staff, as well as an increased opportunity for agency errors and omissions (E&O) claims and lawsuits from both your customers and their business partners. On October 9, I’ll be presenting a webinar for Insurance Journal’s Academy of Insurance called “Forward Into The Past: Certificates of Insurance, Additional Insureds, and Other Contractual Risk Transfer Issues.”

This webinar examines the issues and disputes that invariably arise from your customers’ contractual promises and obligations. By providing scores of real-life examples, emphasis will be placed on how to recognize the issues, understand their potential impact on all parties, how courts are interpreting these controversies, and how to respond to claims and suits arising from the issues. I hope you’ll consider registering for this program.

Since mentioning on LinkedIn a couple of months ago that this webinar was in the planning stages, I’ve been inundated with questions that would be of interest to webinar participants. These inquiries form the basis for this month’s column. The webinar will be more structured and focused, but in the meantime, let me address some random thoughts that have come up while piecing together the webinar content.

Belts and Suspenders

A business partner potentially can be covered under someone else’s CGL policy as an indemnitee and/or an additional insured (AI). I find that many agents do not understand the distinction or the ramifications of this type of “belt and suspenders” approach that reduces the risk of there not being coverage.

For example, under an ISO AI form, the AI is not covered for its sole negligence, but defense is provided outside of policy limits. On the other hand, as an indemnitee under any available contractual liability coverage from another’s ISO CGL policy, the indemnitee may be covered for its sole negligence, but defense costs are included within the policy limits.

An analogy might be renting a car. In most instances, I usually recommend buying the rental company’s loss damage waiver even though the renter has auto physical damage coverage. Each of these approaches cover something the other doesn’t. Belt and suspenders.

Dealing With Onerous COI Requests

The first step in addressing COI requests that are inappropriate, impossible, and/or illegal is recognizing the ones that are inappropriate, impossible, and/or illegal. Keep in mind that there is usually no downside to the requestor asking for specific language on a COI, however outlandish or in conflict with policy language, unless the state has a law, regulation, or DOI directive prohibiting this practice.

It is imperative that agency staff be able to identify such language, understand why it shouldn’t be included on the COI, and explain why to the requestor. In addition, the agency should actively engage in educating customers about how to negotiate such requests from the contracts they review.

What Can/Should Be Entered in the ACORD 25 ‘Description of Operations’ Field?

Rule #1 here is to limit any verbiage at all in this field or any kind of attachments or supplements to the COI. Needless to say, that’s easier said than done, but many states now have legal limitations on what can be said on a COI–especially information that conflicts with the coverages spelled out in the policy for which the COI is issued.

While the October 9 webinar will include scores of examples of improper COI language, the bottom line is that you can say just about anything on a COI that isn’t illegal, a misrepresentation of policy terms, or a violation of an agent’s authority. In fact, you can put language on a COI that IS illegal…if you’re interested in a career working in a prison laundry.

Should Agents Send Copies of COIs to Insurers?

In a word, yes. There is case law (e.g., Marlin v. Wetzel and Erie v. National Grange) that supports this practice in the event there is an E&O claim against the agency or insurer. And there is value to the insurer from the standpoint of quality controlling the representations made by their agents to others, in many cases in violation of agency/company agreements, if not state law.

I have suggested to insurers for years that they review COIs being issued by their agents. In many cases, they will find contract compliance statements and assertions made on COIs that potentially create liabilities for themselves, agents, and insureds that wouldn’t otherwise exist.

Should Agents Send Copies of AI Endorsements or Other Policy Forms to AIs and Others?

There is case law (e.g., Brooks Brown Ins. Agency v. Harden) that supports the premise that “an insured has a duty to take certain steps for its own protection such as reading their policies, certificates of insurance, or any cancellation notice in their possession.”

Instead of trying to paraphrase policy language or use language on a COI that arguably conflicts with what the policy says, with the named insured’s permission, it is usually better to simply provide a copy of the relevant insurance contract language.

This is especially true given that all AI endorsements are not created equal. In addition to the handful of industry-standard AI forms promulgated by ISO, there are many dozens–probably hundreds–of proprietary AI endorsements that differ dramatically from ISO forms.

Admittedly, this can be difficult to negotiate given that many AIs are more resistant to receiving policy forms than insurers are in receiving COIs.

What Are the Liability Implications of Adding AIs and Issuing COIs?

While being added as an AI to someone else’s policy has its advantages, it’s not always a good thing. If your insured has a big, beautiful insurance policy of their own, why would they want coverage under someone else’s policy to be primary where they may have little control over the resolution of the claim?

In addition, sometimes being an AI on a policy may result in a lack of coverage for a claim under specific facts and circumstances of the claim. I’ve blogged about this issue before.

One of the excuses made for not being vigilant about limiting information on a COI rests on the premise that a COI with disclaimers can’t override the policy itself. So, even if the information provided is wrong, the policy still governs. Unfortunately, there is ample case law (e.g., under the principle of detrimental reliance or promissory estoppel) that says otherwise.

These are just a few of the issues raised in response to the announcement of the October 9 Academy of Insurance webinar. These issues are not new, but they may be new to many in the industry today. It seems we have a new generation of agents, underwriters, risk managers, contractors, and business owners who need to move forward into the past…and that’s the goal of this upcoming webinar. Hope to see you there.