additional insureds & certificates of...

Additional Insureds & Certificates of Insurance 11.26.2013 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

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, including those who have earned the CISR, CSRM, CIC, or CRM designations.

System Requirements

Recommended Operating System: Microsoft Windows XP or Higher

Recommended Browser: Internet Explorer 9 or higher

Warning: Some exercises may not work well with Firefox, Safari or Chrome browsers.

The course has not been optimized for tablet devices.

Please make sure you have the latest version of Adobe Flash Player, and the latest version of Adobe Reader installed on your computer.

Lessons and Topics

This course consists of several Lessons with several Topics in each. The pages include many relevant examples and graphics, with frequent knowledge check questions and exercises to test your understanding.

Taking the Self Quizzes:


Self quizzes are located at intervals throughout the topics. You may complete a self quiz as many times as you wish.

Once you restart a self quiz, the score resets to 0.

At the end of each quiz, click on the Assessment Results link on the score page, then right click to print out the results of your quiz.

50 Question Final Exam (Proctor Required)

This course is valid for 4 hours of CISR/CSRM designation update.

A passing score on the Proctored Final Exam is required if you would like to earn continuing education credits for a state issued insurance license.

A passing score on the Proctored Final Exam also earns designation update credit if you are a CISR or CSRM who has elected NOT to take the Review Test.

3 attempts are allowed for all students.

Review Test (No Proctor Required)

The Review Test is available after you have completed all of the self quizzes.

The Review Test is a great study aid for the Final Exam.

For CISRs and CSRMs, use this test to earn designation update credit if you are not planning to take the final exam for state continuing education credits.

Unlimited attempts for all students.

Selecting the Proctor

No proctor is required for the Review Test. HOWEVER, the Final Exam requires a proctor. You are expected to select the proctor and make an appointment prior to the end date of your course timeframe.

Choose a disinterested third party as your proctor. Your state may have additional requirements. Click on the link below for state-specific proctor requirements.

Receiving Credit for the Final Exam

Once you have received a score of 70 or above on the Final Exam, you must submit an affidavit of exam and CE Request Form in order to receive credit for your successful completion. If you do not need CE credits, indicate this by checking the box at the bottom of the CE Request Form.

Print your affidavit of exam and CE request form prior to your exam.

These documents can be found at http://www.scic.com under Courses > Online Courses > Self-Paced Online Courses > Affidavits & CE Request Forms.

http://www.scic.com/


Do not submit an Affidavit/CE Request Form for any Review Test or for an unsuccessful attempt at the Final Exam.

How to reach the Email Mentor and Online Help Desk

Use the Email Mentor link on the bottom right side of your course window to communicate with the national faculty member assigned to your course. He or she is assigned to help you with the lessons, topics and self quizzes. For computer related problems, email the Online Help Desk.

Use the Course Home link on the bottom left of the course window to link to all the information you need to complete this course, including how to contact the Online Help Desk.

© Copyright 2013. The Society of Certified Insurance Counselors, 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 and Research and the Society of CIC. All trademarks and services marks are proprietary to The Society of CIC or its affiliates or licensees.

Curriculum Support (AI)

Curriculum Support

Faculty members from The National Alliance for Insurance Education & Research are assigned to take emails from students participating in the online courses. Our faculty are experienced practitioners and teachers in the industry. We ask them to respond to each email 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.

Help Desk

The mentors will refer any computer issues you have to the Online Help desk. National Alliance staff are available by phone or email for technical support issues. [email protected]. To phone the Online Help Desk call:

mailto:[email protected]


800-633-2165 and select option 2. Monday through Friday 8:30 am to 5:00 pm Central Time

Florida Residents Only (AI)

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 626.901, 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.

Curriculum Intro p1 (AI)

Welcome

Thank you for choosing the Additional Insureds and Certificates of Insurance seminar. Before we begin, it

should be noted that insurance companies often use policy forms other than the ISO Commercial Casualty

forms. These policies may incorporate language similar to the ISO Forms in their contract and endorsement

language.

You must also be aware that state specific forms often contain different provisions than the ISO Standard

Forms. In this seminar, the forms that will be referenced are the ISO Commercial Casualty forms and the

NCCI Workers Compensation and Employers Liability Policy forms.

Be sure to look for difference between the forms which we study in this course, and the company specific or

state specific forms that you use in your job.

Forms used in this course are located clicking on the Forms Library link.



It’s 4:55 on Friday afternoon. You are a customer service representative working with commercial lines

clients.

Have you ever found yourself in this position?

Start Course

Section 1 Introduction to Additional Insureds

Section 2 Additional Insureds and the Commercial General Liability Policy (CGL)

Section 3 Additional Insureds and the Business Auto Policy (BAP)

Section 4 Certificates of Insurance

Course Summary


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 (CGL).

Section 3 - Additional Insureds & the BAP

While Additional Insured discussions most frequently revolve around the Commercial General Liability

Policy, the Business Auto Policy (BAP) 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.


Section 1 - Introduction to Additional Insureds & Certificates of Insurance

Section 1 Intro p1 (AI)

This lesson builds the foundation for the study of additional insureds and certificates of insurance.

Topics include:

Section 1 Introduction

Contractual Risk Transfer

Contractual Obligations

Risk Management Process & Application

Common Insurance-Related Contractual Transfer Agreements & Certificates

Section 1 Review

Section 1 Self Quiz


Learning Objectives: Section 1 Introduction to Additional Insureds & Certificates of Insurance

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 "named insureds" request that an individual or organization be added to their policies as an additional insured, but "named insureds" also request that other individuals or organizations name them as an additional insured on their policies. 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 additional insured status is requested.


Contractual Risk Transfer

Section 1 Contractual Risk Transfer p4 (AI)

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.


Contractual Risk Transfer continued

Organizations 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 organizations to add the other individual or organization as an additional insureds 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 in the retail furniture business. They plan on renting several forklifts for use in their furniture warehouse operations from Convenient Rental Company. The rental agreement for the forklifts reads as follows: The renter of this equipment agrees to hold Convenient Rental Company 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 additional insured status for Convenient Rental Company with limits of at least $500,000 for each occurrence. In addition, O’Malley is required to provide


Convenient Rental Company with a Certificate of Insurance.

The insurance agency for O’Malley’s needs to make sure the Commercial General Liability (CGL) Policy has limits of at least $500,000 for each occurrence, request an additional insured endorsement for Convenient Rental Company and its staff, and issue a certificate of insurance to Convenient Rental Company.



O’Malley’s Fine Furnishings has entered into a contract with Easy Truck Leasing to rent several delivery trucks. The contract requires O’Malley’s Fine Furnishings to carry automobile liability limits of at least $1,000,000 and to provide Easy Truck Leasing with liability coverage and to protect its interest in the truck being leased. Easy Truck Leasing has also requested a certificate of insurance.

The insurance agency for O’Malley’s needs to make sure the BAP has limits of at least $1,000,000, request the BAP be endorsed with an additional insured and loss payee endorsement for Easy Truck Leasing and issue a certificate of insurance to Easy Truck Leasing.



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 Commercial General Liability limits of at least $1,000,000, • name Hasselback as an additional insured on the CGL Policy, 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' Commercial General Liability Policy with limits of at least $1,000,000.

Tino's agent will confirm that these limits are shown on the Policy and endorse the CGL Policy to show Hasselback as an additional insured and issue a certificate of insurance.

Hendricks' insurance agency should make sure $1,000,000 limits are carried on the CGL Policy and add Triple A properties as an additional insured.


Contractual Obligations

Section 1 Contractual Obligations p9 (AI)

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.


Contractual Obligations continued

A contract may require an organization 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. Smith Contracting, Inc. has entered into a contract with Jones, Inc. for a building project. The contract language is as follows:

Section 4.12.5 Subrogation Smith Contracting, 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.

Before we discuss this contract obligation, let’s first understand what the conditions found in Smith’s unendorsed policy state in regards to subrogation.

http://onlinedev.scic.com/dev/NewLinx/RunThruCluster.php



Subrogation Conditions

The Commercial General Liability Policy contains a condition that states the insured must do nothing after the loss to impair the insurance company’s right to subrogation. Basically, this means that the insurance company has the right to subrogate against the party that caused an injury or damage for all or any amounts that the insurance company paid.

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.

Though not expressed, this condition implies that an insured can waive recovery against a third party prior to a loss.


Subrogation Conditions – continued

The Business Auto Coverage (BAC) Form also contains a condition similar to the CGL that states the insured must do nothing after the loss to impair the insurance company’s right to subrogation. Similar to the CGL, the BAC condition implies that the insured can waive recovery prior to a loss

Business Auto Coverage Form Section IV

5. Transfer Of Rights Of Recovery Against Others To Us If any person or organization to or for whom we make payment under this Coverage Form has rights to recover damages from another, those rights are transferred to us. That person or organization must do everything necessary to secure our rights and must do nothing after "accident" or "loss" to impair them.


Subrogation Conditions – continued

The Workers Compensation and Employers Liability Insurance Policy (WC Policy) has a condition that is more limited than found in the CGL and BAP. Since the wording is not clear as to the intent, the policy language can be interpreted to mean that the policy prohibits waivers both prior to or after a loss.


Part One: Workers Compensation Insurance

G. Recovery From Others We have your rights, and the rights of persons entitled to the benefits of this insurance, to recover our payments from anyone liable for the injury. You will do everything necessary to protect those rights for us and to help us enforce them.

Part Two: Employers Liability Insurance

H. Recovery From Others We have your rights to recover our payment from anyone liable for an injury covered by this insurance. You will do everything necessary to protect those rights for us and to help us enforce them.


Waiver of Subrogation

As mentioned earlier, Smith has entered into a contract with Jones. To satisfy Smith’s contractual obligation to obtain waivers of subrogation under all policies, the following endorsements must be added to his policies: Endorsement CG 24 04 Waiver of Transfer of Rights of Recovery Against Others to Us must be added to Smith’s CGL Policy. Endorsement CA 04 44 Waiver of Transfer of Rights of Recovery Against Others to Us (Waiver of Subrogation) must be added to Smith’s BAP. Endorsement WC 00 03 13 Waiver Of Our Right To Recover From Others Endorsement must be added to Smith’s WC Policy. Let’s take a look at these endorsements on the next pages.


Waiver of Subrogation continued

The CG 24 04 Waiver of Transfer of Rights of Recovery Against Others To Us endorsement basically verifies 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.

Unfortunately, while this endorsement is suitable for a contractor, it is not suitable for other types of risks. This is the only standard waiver of subrogation endorsement that has been developed by ISO.

FYI: 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.


Waivers of subrogation continued

Endorsement CA 04 44 Waiver of Transfer of Rights of Recovery Against Others to Us (Waiver of Subrogation) also is used to verify in writing what is otherwise implied, that the company waives its right to subrogate against the party identified in the endorsement schedule. In this example, that would be Jones, Inc.


Waivers of subrogation continued

The National Council on Compensation Insurance has an advisory endorsement WC 00 03 13 Waiver Of Our Right To Recover From Others Endorsement that can be used to waive the company’s right to subrogation against the person or organization that is liable for the injury. This endorsement must be added to Smith’s WC Policy to satisfy Smith’s contractual obligation to obtain a waiver of subrogation.

Caution: Some insurance company may use this endorsement written as is which means this endorsement only applies to work the named insured performs under a written contract that requires the waiver of subrogation.

Note: Some state workers compensation statutes may prohibit the use of waivers.


Hold Harmless/Indemnity Agreement

Contracts may require an organization to hold the other party to the contract harmless. In other words, an organization 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.


Hold Harmless/Indemnity Agreement continued

The indemnity part of the agreement requires the organization to indemnify (make whole) the other party to the contract due to "bodily injury" or "property damage" to a third party. Many of these agreements require the indemnitor to purchase insurance as a way to be assured that the indemnitor has a means of indemnifying them in the event of a loss. Hold harmless/indemnity agreements are also frequently accompanied by:

• a request to be added as an additional insured, and • a request for a certificate of insurance.


Hold Harmless/Indemnity Agreement continued

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).

The Business Auto Policy excludes contractual liability exclusion, but it also includes an exception similar to the CGL for damages that the insured would have had in absence of a contract or agreement or for liability assumed in an “insured contract”.



Example:

A contractor rents a forklift from a rental company. While using the forklift, the contractor hits a parked car. The rental company pays for the damages to the car owner (third party). According to the indemnity agreement, the contractor must reimburse the rental company for the payment made to the other party due to the contractor’s negligence.

This tort liability, assumed under the contract, may be covered by the organization's Commercial General Liability Policy as it falls within the definition of an “insured contract”.

While the CGL Policy 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.

Please refer to Section 1 Contractual Obligations p22 (AI) to complete the Knowledge Check at this time.


Additional Insureds

The other party to the contract may require an organization to name it as an additional insured on the organization's insurance policy.

Additional insureds must be added by endorsement to the ISO CGL Policy. The coverage provided for the additional insured is determined by the CGL Policy and the specific additional insured endorsement used.


Certificates of Insurance

A certificate of insurance is a form or document that indicates that an organization 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. Organizations frequently require their insurance agent or insurance company to issue certificates of insurance to others on their behalf.


Likewise, organizations may require others to issue certificates of insurance on the organization's behalf. Certificates of insurance will be discussed in depth later in this course.


Risk Management Process

Section 1 Risk Management Process & Application p25 (AI)

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.


Learning Objective: Explain how additional insured requirements fit into the risk management process.

Risk Management Process continued

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 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 Elements of Risk Management course.

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 CGL Policy. 4. Waive the insurance company's right to subrogate.

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.

c. add Waiver Of Our Right To Recover From Others Endorsement (WC 00 03 13) to his WC Policy.

Note: George does not have to request the Waiver of Transfer of Recovery Against Others To Us to the CGL and BAP as written verification of such was not requested.


Contractual Risk Transfer Agreements & Certificates

Section 1 Contractual Transfer Agreements p29 (AI)

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 organizations are entering into. While each requirement operates independently from the others, there is frequently a connection.


Contractual Risk Transfer Agreements & Certificates continued

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 on an ISO Commercial General Liability Policy, the policy must 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 CGL 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 under the Commercial General Liability Policy. An additional insured must be added to the CGL 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.


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.

Section 1 Review Page

Section 1 Review

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.

Please refer to the end of Section 1 to complete Self Quiz 1 at this time.


Section 2 - Additional Insureds & the CGL Policy


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 Policy.

Section 2 Introduction

• CGL - Three Types of Insureds • Why Name an Additional Insured? • Problems Associated with Additional Insured Status • Common Additional Insured Endorsements • Additional Insureds - Automatic Status • Section 2 Review • Section 2 Self Quiz



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 an automatic additional insured endorsement.


Additional Insureds & the CGL Policy

Section 2 Three Types of Insureds p3 (AI)

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. 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.


We are about to study the following types of insureds: Named Insureds, Automatic Insureds, and Additional Insureds.

Named Insureds

This "insured" is any person or organization whose name appears on the Declarations of the insurance policy, who has the broadest coverage available on the policy, and who may be responsible for premium.

Automatic Insureds

This is an "insured" by virtue of language which already exists in the policy (Who Is An Insuredsection) such as employees of the "named insured" or the "named insured's" real estate manager.

Additional Insureds

This refers to one or more persons or organizations other than the person or organization named on the Declarations of an insurance policy who are also covered for certain losses under the policy. These


"insureds" are added by endorsement.


Additional Insureds & the CGL continued

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 the preamble in 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.

SECTION II – WHO IS AN INSURED

1. If you are designated in the Declarations as:

a. An individual, you and your spouse are insureds, but only with respect to the conduct of a business of which you are the sole owner.

b. A partnership or joint venture, you are an insured. Your members, your partners, and their spouses are also insureds, but only with respect to the conduct of your business.

c. A limited liability company, you are an insured. Your members are also insureds, but only with respect to the conduct of your business. Your managers are insureds, but only with respect to their duties as your managers.

d. An organization other than a partnership, joint venture or limited liability company, you are an insured. Your "executive officers" and directors are insureds, but only with respect to their duties as your officers or directors. Your stockholders are also insureds, but only with respect to their liability as stockholders.

e. A trust, you are an insured. Your trustees are also insureds, but only with respect to their duties as trustees.

2. Each of the following is also an insured:

a. Your "volunteer workers" only while performing duties related to the conduct of your business, or your "employees", other than either your "executive officers" (if you are an organization other than a partnership, joint venture or limited liability company) or your managers (if you are a limited liability company), but only for acts within the scope of their employment by you or while performing duties related to the conduct of your business. However, none of these "employees" or "volunteer workers" are insureds for:

(1) "Bodily injury" or "personal and advertising injury":


(a) To you, to your partners or members (if you are a partnership or joint venture), to your members (if you are a limited liability company), to a co-"employee" while in the course of his or her employment or performing duties related to the conduct of your business, or to your other "volunteer workers" while performing duties related to the conduct of your business;

(b) To the spouse, child, parent, brother or sister of that co-"employee" or "volunteer worker" as a consequence of Paragraph (1)(a) above;

(c) For which there is any obligation to share damages with or repay someone else who must pay damages because of the injury described in Paragraph (1)(a) or (b) above; or

(d) Arising out of his or her providing or failing to provide professional health care services.

(2) "Property damage" to property:

(a) Owned, occupied or used by;

(b) Rented to, in the care, custody or control of, or over which physical control is being exercised for any purpose by;

you, any of your "employees", "volunteer workers", any partner or member (if you are a partnership or joint venture), or any member (if you are a limited liability company).

b. Any person (other than your "employee" or "volunteer worker"), or any organization while acting as your real estate manager.

c. Any person or organization having proper temporary custody of your property if you die, but only:

(1) With respect to liability arising out of the maintenance or use of that property; and

(2) Until your legal representative has been appointed.

d. Your legal representative if you die, but only with respect to duties as such. That representative will have all your rights and duties under this Coverage Part.

3. Any organization you newly acquire or form, other than a partnership, joint venture or limited liability company, and over which you maintain ownership or majority interest, will qualify as a Named Insured if there is no other similar insurance available to that organization. However:

a. Coverage under this provision is afforded only until the 90th day after you acquire or form the organization or the end of the policy period, whichever is earlier;

b. Coverage A does not apply to "bodily injury" or "property damage" that occurred before you acquired or formed the organization; and

c. Coverage B does not apply to "personal and advertising injury" arising out of an offense committed before you acquired or formed the organization.

No person or organization is an insured with respect to the conduct of any current or past partnership, joint venture or limited liability company that is not shown as a Named Insured in the Declarations.


Summary of Automatic Insureds on the CGL

Named Insured

The Commercial General Liability Policy gives coverage to the Named Insured shown in the Declarations.

The Named Insured refers to the "you" or "your depending on the nature of your organization. Named

Insureds have the broadest coverage of any "insureds" under the Policy.

Examples of common "Named Insureds" include:


Individuals: Named Individuals

• Partnerships or Joint Ventures: Named Partnership or Named Joint Venture

Limited Liability Company (LLC): Named LLC

• Other Organizations: Named Entity such as Named Corporation

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 acquires 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 90th

day after the acquisition or formation, OR until the end of the policy period —whichever is earlier.

Please refer to Section 2 Three Types of Insureds p7-8 (AI) to complete the knowledge checks at this time.


Additional Insured Status

Section 2 Why Name an Additional Insured p9 (AI)

Learning Objective: Provide examples of why another party would want to be named as an additional

insured on your client's CGL Policy.

Why do others want to be added as an additional insured to another’s policy and more importantly, why

would the named insured want to add them as an additional insured to their policy?

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. First let’s start with an example

of people or organizations that want to be added as an additional insured to your client’s policy.

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.

Customers may want to be named as additional insured on their service provider’s policy. Many retailers

require they be added to the policies of manufacturers, wholesalers and distributors before they sell their

product.


Reasons Why Others Want To Be Added As Additional Insureds

There are many reasons why a person or organization want to be added as an additional insured to

another’s policy. We will discuss five of those reasons.

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.



1. Requesting Additional Insured Status may assure greater safety in a risk finance transfer.

As mentioned in Section 1, the other party in a hold harmless/indemnity agreement will typically require

additional insured status on your client’s policy. The primary reason is that the other party to the contract

wants your client’s CGL to provide coverage for them for losses which they may be held legally liable due to

their business activities with your client.

Your client’s CGL policy may provide coverage for the named insured’s contractual agreement to indemnify

the other party to the contract. So if that is the case, why the need to request additional insured status to

another’s policy if there already is a contract or agreement in place?

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 for the other party assures it greater safety in a risk finance transfer – a “safety-

net”, if you will, for the hold harmless agreement. They can seek direct coverage under as an insured your

client’s insurance policy.


Reason #1 continued

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) and that, if needed, the policy will provide coverage for them as well as your client.

Clark Construction can present a claim as an indemnitee.

Clark Construction can present a claim as an insured.


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 Policy.

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 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.

For example:

Chef's Cuisine is one of the tenants renting space in a shopping center from Skylark Management Company.

Chef added the Additional Insured Managers or Lessors of Premises (CG 20 11) endorsement to Chef's CGL

Policy naming the landlord as an additional insured.

One of Chef's employees accidently started a fire in the restaurant kitchen. The building's fire supression

system in the shopping center did not work properly so the fire was not contained immediately. The result

was fire damage to Chef's restaurant and to an adjacent dress shop.


Chef's insurance company paid the property damage claim to Chef and to the dress shop. Even though

Chef's employees started the fire, it was determined that Skylark was negligent in not properly maintaining

the fire suppression system. The insurance company cannot subrogate against Skylark because they are 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 Policy on a

primary basis, but they may also have access to their own CGL Policy 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 these higher limits are needed.

For example:

Burnson Construction is named as an additional insured on one of its subcontractor’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 Policy available.


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 its named insured to be named

as an additional insured on the policies of others.


It is also possible that named insureds 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.

Please refer to Section 2 Why Name an Additional Insured p17 (AI) to complete the Knowledge Check at

this time.


Reasons For Adding An Additional Insured

We have discussed the reasons why others want to be added as an additional insured to your client’s policy.

Now we are going to discuss why your client agrees to add another person or organization to their policy as

an additional insured.

Two Reasons for Adding an Additional Insured

1. There is a close relationship between the named insured and the other party.

2. There is a business relationship usually involving a contractual obligation between the named

insured and the other party.

Let’s look at examples of these types of relationships


Close Relationships

It is common for your clients to want to add others as an additional insured on their policies because of a

close relationship.

United Church

United wants its clergy and church officers protected under the church's CGL Policy for liability arising from

performing their church duties. The church also wants to extend liability coverage to its church members for

liability arising out activities that the members perform on behalf of the church.

American Club


American has club members that perform activities on behalf of the club such as organizing club meetings

and charitable events sponsored by the club. American wants the club's CGL Policy to protect those club

members for liability that arise from performing those activities. American also wants to protect its club

members for liability, not just for the activities performed on their behalf, but also from liability that arises

from their members' participation in the club's activities, including social, service, recreational and sports

activities.

The Espanada Condominiums

Espanada wants its unit owners to be protected under the condominium association's CGL Policy for liability

arising out of the ownership, maintenance or repair of the common areas of the condominium.


Business Relationship

As mentioned before, many business relationships usually involve a contractual obligation between the

named insured and the other party. Let’s look at the following examples involving a requirement for a

person or organization to be added as an additional insured.

ABC Janitorial Services

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.


Business Relationships continued

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 Policy 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.


Business Relationships continued

In each of the previous examples, your client needed to add the other party as an additional insured

because of the business 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

Section 2 Potential Problems p23 (AI)

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

insurance 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.


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 your client does not meet the expectations of the additional insured, this could lead to compliance

problems.

Example: 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.

Your client's administrative breakdowns may easily result in a breach of contract, which is not covered by

the named insured's insurance policy.


Problems for the Named Insured continued

Diminishing Limits of Insurance

Craig’s Construction Company, Inc., does work all over town and for different builders. As a result, six

different entities have been added as additional insureds to Craig’s CGL Policy.

Craig has a $1,000,000 General Aggregate Limit on his CGL Policy. A liability loss occurs involving one of the

additional insureds which reduces the General Aggregate limit to $500,000. A second loss occurs during the

policy period involving another additional insured and the General Aggregate limit is further reduced to

$100,000.

With six additional insureds, the remaining policy limit may leave Craig with an insufficient amount of

coverage to pay for any additional claims under his CGL for claims that may occur during that policy period.


Problems for the Named Insured continued


Unintended Coverage Provided to the Additional Insured

Rod, Inc. is a large commercial plumber and does work for various general contractors on several large

projects. The additional insured endorsement attached to Rod’s CGL Policy is a manuscript endorsement

and the wording providing coverage to the additional insureds is so broad that it could extend coverage for

a claim that occurs at a project that is unrelated to Rod’s work.


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's to carry $1M limits for bodily injury and

property damage. Tim's provided the store with a certificate of insurance reflecting the $1M coverage and

additional insured status.

Several months later and forgetting about the contractual requirement, Tim's 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

it 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.

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

It is not a good idea to depend on someone else’s insurance.

Limits, edition dates of the CGL Policy, exclusions and endorsements are outside of the additional insured's

control.


Problems for the Additional Insured continued

Loss of Control Over Defense & Investigation – Example

Benum Construction was named as an additional insured on Charlie’s Construction’s CGL Policy.

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.


Other Insurance


Disputes over the priority of coverage often arise when an entity purchases its own policy and also

intentionally obtains coverage as an additional insured on the CGL Policy of another.

It is generally understood that the intent of this arrangement is that the entity's own CGL Policy, the CGL on

which the entity is listed as a named insured", is to apply as excess and not share its limits with the CGL

Policy on which the entity is an additional insured.

For example, the general contractor has his own CGL Policy and is also listed as an additional insured on the

sub-contractor’s CGL Policy.

If both policies are the 2013 ISO CGL Coverage Form, the sub-contractor’s CGL Policy will provide primary

coverage for the general contractor. The general contractor will have excess coverage provided by his own

CGL Policy.


Other Insurance continued

The December 2007 ISO CGL Coverage Form “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 Policy.

Problems can arise when the CGL Policy is an earlier edition date or the CGL Policy is an insurance

company's 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 be noted that the “other insurance” wording in the ISO CGL 2013 edition clarifies that the named

insured’s insurance is excess over any other primary insurance for which that named insured has been

added as an additional insured.

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.



Other Insurance continued

Benum Construction was also named as an additional insured on the CGL Policy for Kitchens 4 You. Benum

required and understood Kitchens’ Policy to provide liability coverage on a primary, non-contributory 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.

Tip: Primary and Noncontributory – Other Insurance Condition endorsement (CG 20 01) can be added to the

named insured’s policy to indicate that the named insured’s CGL policy is primary and will not seek

contribution from any other insurance available to an additional insured. See the attached for complete

coverage wording.


As we will discuss shortly, the 11/85 edition of the CG 20 10 included additional insured status for liability

arising out of the "insured’s" work while the 7/04 edition provides coverage for liability caused in whole or

in part by the "named insured’s" acts or omissions or those acting on behalf of the "named insured".

In other words, the latest edition requires partial responsibility for the damages be the "named insured’s"

or those working on behalf of the named insured. This does not provide coverage if the loss is soley caused

by 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 editions provide coverage caused in whole or in part by the

ongoing operations of the "named insured" 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.


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 Policy, 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.

Please refer to Section 2 Potential Problems p35 (AI) to complete the Knowledge Check at this time.


Additional Insured Endorsements

Section 2 Additional Insured Endorsements p36 (AI)

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.


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.

You can download each of these forms from the slide.


• Additional Insured – Owners, Lessees or Contractors – Scheduled Person or Organization CG 20 10

• Additional Insured – Owners, Lessees or Contractors – Completed Operations CG 20 37

• Additional Insured – Managers or Lessors of Premises CG 20 11

• Additional Insured – Lessor of Leased Equipment CG 20 28

• Additional Insured – Vendors CG 20 15


Common Coverage Limitations In Many Endorsement Forms

Even though there are various types of additional insured endorsements, recent editions of many additional

insured endorsements have the same coverage limitations in common. Most of these additional insured

endorsements only provide insurance protection for the additional insured for the sole negligence of the

named insured (caused in whole) or for the joint negligence of the named insured and the additional

insured (caused in part). However, this protection to the additional insured only applies to the extent

permitted by law.

If coverage provided to the additional insured is required by a contract or agreement, the insurance

afforded to such additional insured will not be broader than that which the named insured is required by

the contract or agreement to provide for such additional insured. Also, payment on behalf of the additional

insured is limited to the amount required by the contract or agreement; or what is available under the

applicable Limits of Insurance shown in the Declarations, whichever is less.


Common Additional Insured Endorsements - CG 20 10

We’ve selected CG 20 10 to discuss first for a good reason. There are several editions of this ISO

endorsement that offer increasingly restrictive coverage. To understand the distinctions between these

editions of the CG 20 10, you should understand:

Sole Negligence/Contributory Negligence

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.

Completed Operations Liability

Legal liability results when injury to others or damage to property of others is caused by 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 20 10)

This endorsement is used when owners, lessees, and contractors have required that they be added to a

contractor's or subcontractor’s CGL Policy.

This endorsement modifies the Who Is An Insured section of the CGL Coverage Form to include the person

or organization shown in the schedule, but only for "bodily injury", "property damage" or "personal and

advertising injury" caused in whole or in part by the named insured's act or omissions or the acts of

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 at the locations designated in the endorsement.

However, the insurance afforded to the additional insured only applies to the extent permitted by law. Also,

if coverage is required by a contract or agreement, the insurance provided to the additional insured will not

be broader than that which is required by the contract or agreement.

This endorsement does not include any insurance protection for the completed operations exposure.

If coverage provided to the additional insured is required by a contract or agreement, the most that will be

paid on behalf of the additional insured is the amount required by the contract or agreement; or what is

available under the applicable Limits of Insurance shown in the Declarations, whichever is less.

Let's take a look at the endorsement verbiage to make sure you understand.



11/85 Edition

This additional insured endorsement has gone through several 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.

Scroll down on the form (on the slide) to see the words "arising out of your work."

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 Policy definition, “your work” includes completed operations.

It is difficult to find insurance companies able and/or willing to provide the 11/85 edition.


11/85 Edition continued

This endorsement has several recent edition dates, each providing more limited coverage than the previous

edition. It is important to understand the coverage distinctions of each edition date.

11/1985

This edition date uses "your work" (instead of "your ongoing operations" as used in other editions). Since

the term "your work" is associated with "completed operations", this edition includes "completed

operations" for the additional insured. This edition date provides the broadest coverage for the additional

insured.

10/1993

This edition replaces "your work" with "your ongoing operations" performed for that additional insured.

Since the term "your work" is associated with "completed operations", its replacement with "ongoing

operations" attempts to eliminate 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

The endorsement name changes to:

ISO CG 20 10 - Additional Insured - Owners, Lessees or Contractors - Scheduled Person or Organization

Who Is An Insured language remains the same as in the 10/1993 edition.

10/2001

This version of the endorsement adds a specific exclusion for losses due to the completed operations of the

named insured.


With respect to the insurance afforded to these additional insureds, the following exclusion is added.

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.

07/2004

The 2004 version eliminates 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. It does contain the

specific exclusion for completed operations.


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) designed

above.


04/2013

The 2013 version added wording to further limit the coverage to the Additional Insured to apply only to the

extent permitted by

law. Also, if there is a contract or agreement, insurance afforded to such additional insured will not be

broader than that which is

required by the contract of agreement and payment will be limited to the amount required by the contract

or agreement; or the

available applicable Limit of Insurance.

However:

1. The insurance afforded to such additional insured only applies to the extent permitted by law; and

2. If coverage provided to the additional insured is required by a contract or agreement, the insurance

afforded to such additional insured will not be broader than that which you are required by the

contract or agreement; or the available applicable Limit of Insurance.

C. With respect to the insurance afforded to these additional insureds, the following is added to the Section

III - Limits Of Insurance:

If coverage provided to the additional insured is required by a contract or agreement, the most we will pay

on behalf of the additional insured is the amount of insurance:

1. Required by the contract or agreement; or

2. Available under the applicable Limits of Insurance shown in the Declarations;

whichever is less.

This endorsement shall not increase the applicable Limits of Insurance shown in the Declarations.


What if your client is required to provide Completed Operations coverage for an additional insured and

the 11/85 edition is not available from your insurance companies?


Additional Insured – Owners, Lessees or Contractors – Completed Operations (CG 20 37)


What if your client is required to provide completed operations coverage for an additional insured and

the 11/85 edition is not available from your insurance companies?

This endorsement can be used to provide completed operations coverage for the additional insured. (This

endorsement is not necessary if the 11/85 edition of the CG 20 10 is used.)

In many situations, you may need to use both the CG 2010 and CG 20 37 to meet contract requirements.

Let's read the endorsement wording before proceeding.

This endorsement modifies the Who Is An Insured provision of the CGL Coverage Form to include the

person or organization shown in the schedule, but only for "bodily injury" or "property damage" 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”.

However, coverage afforded to the Additional Insured only applies to the extent permitted by law. Also, if

coverage is required by a contract or agreement, the insurance afforded to such additional insured will not

be broader than that which is required by the contract or agreement and payment will be limited to the

amount required by the contract or agreement; or the available applicable Limit of Insurance, whichever is

less.

Please refer to Section 2 Additional Insured Endorsements p46 (AI) to complete the Knowledge Check at

this time.


Additional Insured – Managers or Lessors of Premises (CG 20 11)

This endorsement is used to change the Who Is An Insured provision of the CGL Policy 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.



Additional Insured – Managers or Lessors of Premises (CG 20 11) continued

Example:

A tenant rents space from a building owner. The building owner requires the tenant, your client, to add the

building owner as an additional insured to the tenant's CGL Policy.

The language in the endorsement which makes this change is as follows:

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 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:

However the endorsement also includes language that excludes coverage under certain situations. The

exclusion applies as follows:

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(s) or organization(s) shown in the Schedule.

Example of Exclusion 1:

The tenant moves from the premises. The building owner is sued as a result of a slip and fall that occurs

after the tenant moves.

Although the building owner is still named as an additional insured on the tenant's policy, no insurance

protection will be provided.

Example of Exclusion 2:

The building owner hires a contractor to replace a wall at the premises. A passerby is injured.

Although the building owner is named as an additional insured on the tenant's policy, no insurance

protection will be provided.

Like the two previously discussed endorsements, coverage only applies to the extent permitted by law. Also,

if coverage is required by a contract or agreement, the insurance afforded to such additional insured will

not be broader than that which is required by the contract or agreement and payment will be limited to the

amount required by the contract or agreement; or the available applicable Limit of Insurance, whichever is

less.



Errors & Omissions Alert

There is a two part test for coverage to apply. The premises must be leased to the named insured and

shown in the Schedule.

The premises could be leased to the named insured but not shown in the Schedule. - No Coverage.

The premises could be shown in the Schedule but not leased to the named insured - No Coverage.

The best approach is to show "leased premises as described in the lease" as the Designation of Premises

(Part Leased to You) in the Schedule. This reduces the possibility for error.


Additional Insured – Lessor of Leased Equipment (CG 20 28)

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 An Insured provision of the CGL Coverage Form to include as an

additional insured the person or organization shown in the Schedule, but only for "bodily injury", "property

damage" or "personal and advertising injury" caused in whole or in part by the named insured's

maintenance, operation or use of the equipment. However, coverage only applies to the extent permitted

by law.

Also, if coverage is required by a contract or agreement, the insurance afforded to such additional insured

will not be broader than that which is required by the contract or agreement and payment will be limited to

the amount required by the contract or agreement; or the available applicable Limit of Insurance,

whichever is less.

There is no insurance protection for the additional insured for any "occurrence" that takes place after the

equipment lease expires.


Additional Insured – Lessor of Leased Equipment (CG 20 28) continued


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 equipment service requires your client to add it as an additional insured to your client’s CGL

Policy for losses related to the leased equipment.

If the coffee equipment service is named in a claim because the coffee machine malfunctions and burns a

customer of your client, the coffee equipment service is provided protection as an additional insured to the

extent permitted by law and as long as the injury was not caused by the sole negligence of the coffee

equipment service.


Additional Insured – Vendors (CG 20 15)

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 An Insured section of the CGL Coverage Form to include as an

additional insured the person or organization (referred to as vendor) shown in the Schedule, but only for

"bodily injury" or "property damage" arising out of "your products" (as defined in the CGL Coverage Form)

shown in the Schedule. However, coverage only applies to the extent permitted by law.

Also, if coverage is required by a contract or agreement, the insurance afforded to such additional insured

will not be broader than that which is required by the contract or agreement and payment will be limited to

the amount required by the contract or agreement; or the available applicable Limit of Insurance,

whichever is less.

Coverage provided to the Additional Insured is subject to additional exclusions contained in the

endorsement.

Before continuing, let's read this endorsement.


Additional Insured – Vendors (CG 20 15) continued


Example:

Stella manufactures expensive statuary. She has asked JB’s Boutique to sell her product. JB’s agrees, but

requires Stella to carry limits of at least $1,000,000 each occurrence and name JB's Boutique as an

additional insured on Stella's CGL Policy for liability coverage in case the statutory products cause injury to a

third party.

If a bodily injury or property damage claim is made against JB's Boutique for a defective product

manufactured by Stella, Stella's CGL Policy would respond on JB's behalf but only to the extent permitted by

law and as long as no exclusions apply. The most that will be paid on JB's behalf is the limit required by the

contract or whatever applicable limit Stella has available on her CGL Policy, whichever is less.


CG 20 15 Continued

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;

8. 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.

Make sure each product for which coverage is desired is listed on the endorsement.

Please refer to Section 2 Additional Insured Endorsements p55 (AI) to complete the Knowledge Check at

this time.


What is an automatic additional insured endorsement?

Section 2 Automatic Additional Insured Endorsements p56 (AI)

Learning Objective: Understand why an insured would benefit from an automatic 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 named insureds to notify their agent about the need to

add another additional insured endorsement to their CGL Policy. For the contractor, additional insured

requests can be numerous.

What happens if the named insured “forgets” to request the additional insured endorsement for a specific

individual or organization as required by a contract?

Automatic status additional insured endorsements were created as a way to reduce administrative errors

and oversights when providing additional insured status. They are used to automatically include persons or

entities who require additional insured status under the terms of a business contract with the named

insured.

This reduces the need for the named insured to request these entities be individually added as additional

insureds.


Additional Insured-Owners, Lessees Or Contractors-Automatic Status when Required In Construction

Agreement With You (CG 20 33)

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 to that entity when the named insured is

required to do so by a written construction agreement with that entity.

Coverage is provided with respect to liability for "bodily injury", property damage" or personal and

advertising injury" caused, in whole or in part, by the named insured's or those acting on the named

insured's behalf for ongoing operations for that additional insured. However, coverage is only provided to

the extent permitted by law and will not be broader than which is required by the contract or agreement

for such additional insured.


This endorsement does not include any insurance protection for the completed operations exposure. It also

limits the amount paid on behalf of the additional insured to the amount required by the contract or

agreement or the available applicable Limit of Insurance shown in the Declarations, whichever is less.

Tip: If completed operations coverage is required, the entity must be scheduled on the Additional Insured –

Owners, Lessees or Contractors – Completed Operations [CG 20 37] endorsement as previously discussed.

The automatic additional insured status does not apply to this endorsement.


Errors & Omissions Alert

The CG 20 33 endorsement only gives automatic additional insured status for ongoing operations to the

person or organization who/which is a party to the contract with the named insured.

For example, the subcontractor signs a contract with the general contractor that requires the subcontractor

to name the general contractor and the owner as additional insureds. This endorsement will give additional

insured status to the general contractor, not the owner. (There is no written contact between the

subcontractor and owner.)

A solution for this problem is to attach CG 20 38 Additional Insured - Owners, Lessees or Contracts -

Automatic Status For Other Parties When Required in Written Construction Contract. This endorsement

includes any other person or organization the named insured is required to add as an additional insured

under the contract or agreement.


Automatic Additional Insured Endorsements continued

Most automatic 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;

• The types of liability the endorsement does not apply to;

• And the persons or organizations which will provided coverage.

To avoid an uncovered loss with regard to an additional insured, both the named insured and the insurance


professional should understand the coverage provided by the specific automatic additional insured

endorsement being used.


Summary

We have reviewed the reasons that "named insured" 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.

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.

Section 2 Review Page (AI)


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 an automatic additional insured endorsement.



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 named insureds will want or need to expand Who Is An Insured on their Business

Auto Policy to provide coverage to specific individuals or organizations.

• Section 3 Introduction

• Who is Automatically Insured under the Business Auto Policy?

• Problems & Solutions: Additional Insured Endorsements & the Business Auto Policy

• Section 3 Review

• Section 3 Self Quiz



1. Understand Who Is An Insured as provided in the Business Auto Policy.

2. Understand the situations when insured or additional insured status would be required or

requested.

3. Discuss endorsements that can be used to grant insured or additional insured status, including the

coverage provided by each


The ISO Business Auto Coverage Form CA 00 01 will be used as reference for this section.

Refer to the slide to view a printable copy of the coverage form.


Who Is An Insured?

Section 3 Who is an Insured (BAP) p4 (AI)

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 Coverage Form.

You may recall the previous discussion regarding three types of insureds.

Named Insureds

The individual or entity shown on the Declarations. Typically referred to as a “you” in the policy. The named

insured is provided the broadest coverage.

Automatic Insureds

Any person or organization qualifying as insured according to the Who Is An Insured provision of the

Business Auto Coverage Form. 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 BAP only by endorsement.


Who is an Insured continued

The ISO Business Policy Coverage Form CA 00 01 will be used as reference in this section.

Any person or organization that qualifies for one of the categories of the Who Is An Insured provision of the

Business Auto Policy is an insured.



Notice that Named Insured and Automatic Insured status applies for any covered auto.

If the vehicle is not designated as a covered auto then no coverage applies.

So what is a covered auto?

Item Two of the Declarations shows the "autos" that are covered "autos" for each of the named insured’s

coverages. The numerical symbols describe the "autos" that may be covered "autos". The symbols entered

next to a coverage on the Declarations designate the only "autos" that are covered "autos".

Refer to the slide for a Description of Covered Auto Designations Symbols.


Covered autos are designated by the entry of one or more symbols next to the coverage.

Please refer to the slide to view the exhibit.




First Category

The "named insured", whether an individual, corporation, partnership, LLC or other is an insured for any

covered auto.



Permissive User 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 that the named insured owns, hires or borrows.

Example:

Ace Construction owns five vehicles that are designated as covered autos under the BAP. Mary, the

bookkeeper, is given permission to drive any of the company owned vehicles for business errands. Mary is

considered an insured while driving these company vehicles.

There are, however, five exceptions where permissive users are NOT insureds.



Five Exceptions

The following are not considered insureds:

• 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.)

• The "named insured's" employee for a covered auto owned by that employee or a member of that

employee's household.

• Anyone in the auto business, (selling, servicing, repairing, parking or storing) unless it is the named

insured’s auto business.

• Anyone loading or unloading a covered auto unless an employee, partner (partnership), member

(LLC), or a lessee or borrower or any of their employees.

• A partner (partnership) or member (LLC) for a covered auto owned by him or her or a member of

his or her household.



Vicarious Liability Category


Anyone vicariously responsible for the conduct of an insured as described in the previous two categories is

also an automatic insured.

Example

Mark is a subcontractor 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 a 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.


Others are not the only ones requesting additional insured status.

The named insured may also be the one requesting that a person or organization be given insured status.

This is especially important once the named insured understands the following:

1. Not all autos are covered autos; only those autos designated as covered autos on the Declarations;

and

2. Not all officers, partners and employees are considered insureds because of the specific exceptions

in the permissive user category;

Item Two of the Declarations shows the "autos" that are covered "autos" for each of your coverages. The


following numerical symbols describe the "autos" that may be covered "autos". The symbols entered next

to a coverage on the Declarations designate the only "autos" that are covered "autos".

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

Section 3 Additional Insured Endorsements for BAP p14 (AI)

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. The BAP is written with

Symbol 2 (Owned Autos), 8 (Hired Autos), and 9 (Non-owned Autos Only) for liability coverage and Symbol 2

and 8 on the Physical Damage Coverage.

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.

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?

Answer: No


Situation #1


Hartley's Fine Furnishings, Inc. is the "named insured" on a Business Auto Policy. The BAP is written with

Symbol 2 (Owned Autos), 8 (Hired Autos), and 9 (Non-owned Autos Only) for liability coverage and Symbol 2

and 8 on the Physical Damage Coverage.

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?

Answer: No


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.

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. Recall that the symbols

on the Business Auto Declarations designate what autos are considered covered autos. Before we proceed

further, let’s do a short review of the description for owned autos and non-owned autos.

Symbol 2 is only those "autos" the named insured owns.

Symbol 9 is only those "autos" the named insured does not own, lease, hire, rent or borrow that are used in

connection with the named insured’s business.

Simply put, the named insured does not own the autos and the named insured did not rent or borrow the


autos in these situations, therefore those auto are not considered covered autos. Since the autos in this

situation are not covered autos, neither Lloyd nor Tom qualify as insureds under the BAP.

Solution: Drive Other Car Coverage - Broadened Coverage for Named Individuals (CA 99 10)

Refer to the slide to print a copy of this endorsement.


Solution: Drive Other Car Coverage - Broadened Coverage for Named Individuals (CA 99 10)

This endorsement is typically used for a corporate officer, partner or key employee who do not own

a personal vehicle and do not have a Personal Auto Policy. It provides coverage for their use of non-

owned autos (similar to that provided by a Personal Auto Policy).

Who Is An Insured is changed to provide insured status for the person listed (named individual in

the endorsement schedule). This insured status also applies to their spouse if a resident of the same

household.

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.

The endorsement extends coverage to the person listed (named individual) and their spouse;

however, each coverage must be selected and a premium is charged. Coverages that can be

selected are: covered auto liability coverage, auto medical payments, comprehensive, collision,

uninsured motorists and underinsured motorists.


E&O Alert

There is also a personal lines solutions: PP 03 22 Named Non-owner Coverage, which provides broader

coverage than the coverage afforded by CA 99 10. Click on the Forms Library link on the top menu bar for a

copy of PP 03 22.



Situation #2

Danny Clarke dba Lacey Landscaping is the named insured on a Business Auto Policy. The BAP is written

with Symbol 2 (Owned Autos), 8 (Hired Autos), and 9 (Non-owned Autos Only) for liability coverage and

Symbol 2 and 8 on the physical damage coverage.

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 at-fault accident.

Her mom carried minimum limits that are insufficient to pay all of the damages. Chris has been sued.


Will the Business Auto Policy provide liability coverage for Chris?

Answer: No


Situation #2

Danny Clarke dba Lacey Landscaping is the named insured on a Business Auto Policy. The BAP is written

with Symbol 2 (Owned Autos), 8 (Hired Autos), and 9 (Non-owned Autos Only) for liability coverage and

Symbol 2 and 8 on the physical damage coverage.

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 #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.



Will the Business Auto Policy provide liability coverage for Lisa?

Answer: 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

Recall that the symbols on the Business Auto Declarations designate what autos are considered covered

autos.

Symbol 2 is only those "autos" the named insured owns.

Symbol 9 is only those "autos" the named insured does not own, lease, hire, rent or borrow that are used in

connection with the named insured’s business.

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 non-business use.

Solution: Individual Named Insured Endorsement (CA 99 17)

Refer to the slide to view a printable copy of this endorsement.


Solution: Individual Named Insured (CA 99 17)

This endorsement is added to a Business Auto Policy when

o when a named insured on the Declarations is an individual,


o all personally owned autos are insured on the Business Auto Policy, and

o the named insured does not have a Personal Auto Policy.

Who Is An Insured for liability is changed to include the resident spouse of the "named insured" and

family members (as defined) for any covered "auto" of the private passenger type and "non-owned

autos".

This endorsement basically adds Personal Auto Policy coverage to the Business 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.

Unlike the Drive Other Car Coverage endorsement, coverages do not need to be individually

selected. This endorsement extends liability and physical damage if physical damage is provided for

any "auto" on the Policy.

Unlike the Drive Other Car Coverage endorsement, the Fellow Employee Exclusion does not apply to

the "named insured's" or any family memers fellow employees.

Note: If the BAP is already endorsed with medical payments, uninsured motorists, and no-fault coverage,

and if the named insured is designated as an individual on the Declarations, then family members are also

considered insureds under these coverages without the need for separate endorsements. Coverage may

vary by jurisdiction, so review those endorsements for complete wording


Situation #3

Rhodes Insurance, Inc. is the named insured on a Business Auto Policy. The agency owns three company

cars that are covered autos under the BAP. Rhodes provides the use of the company cars only to the

corporate officers and not to any of the other employees. The BAP includes coverage for non-owned autos.

Their bookkeeper, Becky, drives her personal vehicle to and from the bank for agency business.

Problem #1

Becky has an at-fault accident while on the way to the bank.



Will Rhodes’ Business Auto Policy provide Becky liability coverage for her accident?

Answer: No


Situation #3

Rhodes Insurance, Inc. is the named insured on a Business Auto Policy. The agency owns three company

cars that are covered autos under the BAP. Rhodes provides the use of the company cars only to the

corporate officers and not to any of the other employees. The BAP includes coverage for non-owned autos.

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.


Will Rhodes’ Business Auto Policy provide Travis liability coverage for his accident?

Answer: No


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.


The Business Auto Policy will not provide liability coverage for neither Becky nor Travis as they were driving

vehicles owned by them. Recall that the Who Is An Insured provision does not provide insured status to an

employee if the covered auto is owned by that employee or a member of his or her household. Note: In this


situation, Becky and Travis would have to rely on their Personal Auto Policy for coverage.

Solution: Employees as Insureds (CA 99 33)



Solution: Employees as Insureds (CA 99 33)

This endorsement addresses the exclusionary language that states an employee is not an "insured"

while driving a covered "auto" owned by that employee or a member of that employee’s

household.

Who Is An Insured is changed to include employees while using a covered "auto" the named insured

doesn’t own, hire or borrow in the named insured’s business or personal affairs.

Employees using their personal vehicles on behalf of the named insured are now "insureds" for

liability coverage while conducting the named insured’s business or the named insured’s personal

affairs.

The employee’s personal insurance is primary and the BAP provides liability on an excess basis.

This endorsement also prohibits the Business Auto Policy insurer from subrogating against the

employee when the employee’s negligence is the cause of the loss as the employee is now an

"insured".

It should be noted that this endorsement, like all endorsements, is subject to underwriting

approval. Insurance companies will typically require the named insured to verify that each

employee has Personal Auto Policy liability coverage at specified minimum limits such as

100/300/50.


Situation #3

Davis Consulting, Inc. is the named insured on a Business Auto Policy. The BAP is written with Symbol 2

(Owned Autos), 8 (Hired Autos), and 9 (Non-owned Autos Only) for liability coverage and Symbol 2 and 8 on

the Physical Damage Coverage. When Betty, the marketing representative for Davis Consulting, flies out of

town on business, she rents an auto in her personal name.


Problem #2

Betty is driving the rental car to a client’s office when she has an at-fault accident. Betty is sued for the

injury and damage she caused.


Will Davis Consulting’s BAP provide liability coverage for Betty?

Answer: No


Problem

Betty is driving the rental car to a client’s office when she has an at-fault accident. Betty is sued for the

injury and damage she caused.


The Business Auto Policy will not provide liability coverage for Betty as she is not an insured under the BAP

since she was not driving a covered auto. Betty did not rent the auto in the business name; therefore, those

auto are not considered covered autos. Since the autos in this situation are not covered autos, Betty does

not qualify as an insured under the BAP. Note: In this situation, Betty would have to rely on her Personal

Auto Policy for coverage.

Solution: Employee Hired Autos (CA 20 54)



Solution: Employee Hired Autos (CA 20 54)

• This endorsement changes Who is An Insured to include any employee while operating an auto

hired or rented under a contract or agreement in an employee’s name, with permission of the

named insured, while performing duties related to the conduct of the named insured’s business.

• If the policy includes Hired Auto Physical Damage Coverage, the auto hired or rented by the

employee is also a covered auto for physical damage (again, must be with the permission of the


named insured and performing duties related to the conduct of the named insured’s business).

• This endorsement does not provide coverage for the employee while using the hired auto for

personal use; it only provides coverage while performing duties related to the named insured’s

business.

• This endorsement does not provide coverage if the auto is leased, hired, rented or borrowed with a

driver.


Situation #5

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 and the Mercedes need to be covered under Alpena’s Business Auto Policy according to the lease

agreement.


Is there an endorsement required to provide Art the coverage he needs when adding the Mercedes to

Alpena’s Business Auto Policy?

Answer: Yes


Problem

The vehicle is not owned by the named insured.


The Business Auto Policy will not provide coverage for Art. Recall that the Who Is An Insured provision does

not provide insured status to an employee if the covered auto is owned by that employee or a member of

his or her household.

Solution: Employee as Lessor (CA 99 47)




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.

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. If it is decided to use the DOC endorsement,

the Fellow Employee Exclusion of the BAP should be deleted for Art.


Situation #6

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 the Who Is An Insured provision provides insured status to:

Anyone responsible for the conduct of an insured (Vicarious Liability).

However, ADR wants written proof this is true.


Is there an endorsement available to specifically show ADR as an additional insured on Rincon's Business

Auto Policy?

Answer: 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?


Yes, an endorsement can be attached to the policy to reflect this status.

Solution: Designated Insured For Covered Autos Liability Coverage (CA 20 48)


Solution: Designated Insured For Covered Autos Liability Coverage 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.

This endorsement allows the insurance company to list person(s) or organization(s) as an additional

insured even though the Who Is An Insured provision already grants 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 wasn’t already there.



Situation #7

Berg Industries, Inc. leases several of the "autos" insured on its Business Auto Policy.

Problem

The leasing company requires Berg to provide liability coverage and to protect its interest in the vehicles.


Does the Business Auto Policy automatically provide this protection for a lessor?

Answer: No


Problem

The leasing company requires Berg to provide liability coverage and to protect its interest in the vehicles.


The Business Auto Policy will not provide coverage for the leasing company. Recall that the Who Is An

Insured provision does not provide insured status to the owner or anyone else from the named insured

hires or borrows a covered auto.

Solution: Lessor - Additional Insured and Loss Payee (CA 20 01)



Solution: Lessor - Additional Insured and Loss Payee CA 20 01

This endorsement is used to treat an "auto" leased by the "named insured" as an owned "auto".

This endorsement is used to add the lessor of a "leased auto" as an "insured" on the Business Auto

Policy.


Insured status for the Lessor only applies to liability resulting from the acts or omissions by the

named insured, its employees or permissive users. It does not apply to the acts or omissions of the

lessor or the lessor’s employees.

This endorsement also adds the lessor 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.

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

Section 3 Summary p41 (AI)

Just as with the CGL Policy where 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.

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.


Summary continued

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 added as "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 potential coverage gaps, they can make an informed decision as to whether or

not to extend coverage from their Business Auto Policy to those individuals.



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 endorsements that can be used to grant insured or additional insured status, including the

coverage provided by each.



Section 4 - Certificates of Insurance

Section 4 Certificates of Insurance p1 (AI)

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.

• Section 4 Introduction

• Purpose of Certificates of Insurance

• Reviewing Contracts for Insurance Requirements

• The ACORD 25 Certificate Form

• E&O Risks for Certificate Administration

• Section 4 Review

• Section 4 Self Quiz



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 2009/09 and 2010/05 Editions

Many students of this course may be familiar with earlier versions of the ACORD 25, particularly the editions

prior to 2009. The cancellation section wording was substantially changed with the 2009/09 edition and the

disclaimers that were formerly located on the backside of the document have been moved to the front. The

most current edition is the 2014/01 edition which will be used to study in this course. The 2014/01 edition

maintains the significant changes made in 2009.



Certificate of Insurance continued

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?

Section 4 Purpose of Certificates of Insurance p5 (AI)

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.


There are two parties to a certificate of insurance: the named insured and the certificate holder.


Parties to a Certificate of Insurance continued

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.


Section 4 Purpose of Certificate of Insurance p8 (AI)

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.

Section 4 Purpose of Certificate of Insurance p9 (AI)

Why a Certificate is Requested continued

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.


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.


Here is a another look at the interrelationships among various risk transfer techniques, introduced earlier in

Section 1. It clearly shows that while a certificate of insurance can stand alone, it is also requested in

conjunction with other risk transfer techniques including adding an individual or entity as an additional

insured.

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


Please refer to Section 4 Purpose of Certificates of Insurance p13-14 (AI) to complete the Knowledge

Checks at this time.


Contract Review

Section 4 Contract Review p15 (AI)

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.


Contract Review continued

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.

A contract in Word or PDF format can be easily searched for insurance-related terms such as hold harmless,

save harmless, indemnity, indemnify, liability, certificate, additional insured, waiver, subrogation, risk, all

risk, etc.




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.



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:

1. The certificate can be issued without changes to the existing insurance coverage.

2. The certificate cannot be issued as requested as the current insurance coverage is inadequate

either in coverage and/or limits.

3. 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.

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

O’Malley’s Fine Furnishings is in the retail furniture business. They plan on renting several forklifts for use in

their furniture warehouse operations from Convenient Rental Company. The rental agreement includes the

hold harmless language indicated below. The agreement also requires O’Malley’s to provide additional

insured status for Convenient Rental Company with limits of at least $500,000 for each occurrence. In

addition, O’Malley is required to provide Convenient Rental Company with a Certificate of Insurance. As the

agent, you would do the following:

1. Make sure the Commercial General Liability (CGL) Policy has limits of at least $500,000 for each

occurrence,

2. Request an additional insured endorsement for Convenient Rental Company and its staff

3. Issue a certificate of insurance to Convenient Rental Company.

The renter of this equipment agrees to hold Convenient Rental Company and its staff harmless for any

third-party claims which may arise from the use of the equipment.

Refer to the slide to view a completed certificate of insurance.

Please refer to Section 4 Contract Review p20 (AI) to complete the Knowledge Check at this time.


Now we will study an example of a certificate request that requires modification of policy limits. 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.



Your insured may be signing a contract with requirements that are more difficult to meet than the two

previous examples.

Kendziorski Enterprises, Inc. is leasing equipment from ABC Systems, Inc.

Refer to the slide to view the sample equipment lease.


Contract Review Example 3 continued

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


Contract Review Example 3 continued


Let’s look at the contractual requirements to determine whether or not the client’s current insurance

program provides the requested coverage.

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.



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 Policy. 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.

Refer to the slide to view a sample certificate.

The insured may also be found in breach of contract by the insurance company for not providing a

certificate of insurance that amended the required number of days notice for either cancellation, or change

or modification to the policy.



Summary of Contract Review Example 3 continued

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.



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.


ACORD 25 Certificate of Liability Insurance

Section 4 ACORD Certificate p32 (AI)

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 (2014/01

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.

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.


The first section of this form includes the date field and two important disclaimers.

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.

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.



Top Section continued

Also on the top section of ACORD 25, agency, agency contact, insured and insurance company information.

4. Producer/Agency Contact Information

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.



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.

THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE

CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AFFIRMATIVELY OR NEGATIVELY AMEND, EXTEND OR

ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW. THIS CERTIFICATE OF INSURANCE DOES NOT

CONSTITUTE A CONTRACT BETWEEN THE ISSUING INSURER(S), AUTHORIZED REPRESENTATIVE OR

PRODUCER, AND THE CERTIFICATE HOLDER.




Earlier editions of the ACORD 25 contained these disclaimers; however, they were located on the backside

of the certificate.

IMPORTANT: If the certificate holder is an ADDITIONAL INSURED, the policy(ies) must be endorsed. If

SUBROGATION IS WAIVED, subject to the terms and conditions of the policy, certain policies may require an

endorsement. A statement on this certificate does not confer rights to the certificate holder in lieu of such

endorsement(s).


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.

THIS IS TO CERTIFY THAT THE 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- LIMITS SHOWN MAY HAVE BEEN

REDUCED BY PAID CLAIMS.


Coverage Section continued

Several court cases have a bearing on certificates of insurance.


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. (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)."

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, 1988.

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.



INSR LTR Field

Enter the company letter from the insurer list in the first section under INSURER(S) AFFORDING COVERAGE.

Put an X in each box corresponding to the coverage provided by that insurer.

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.

Policy Number Field

Make sure these fields reflect exactly 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

number as a binder.

Policy Date Fields

Show the policy period effective date and the policy expiration date, do not show binder dates.




Type of Insurance Fields:

The applicable boxes should show an X indicating the type of insurance and the specific coverages provided.

For example, the Automobile Liability section needs to indicate the coverage based on the Symbols shown

in the Business Auto declaration page.

Limits Fields

The limits should be the actual policy limits even if higher than required by the certificate holder. Any

aggregate limits should also be shown. Check the Workers Compensation box for either statutory limits or

Other. Employers Liability limits should also be included.


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.


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.

Refer to the slide to view the difference in editions.


Cancellation Section continued

The cancellation section of the 2014/01 ACORD 25 does not require information to be filled in. It clearly

refers the certificate holder to the policy's cancellation provisions.

SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION DATE THEREOF,

NOTICE WILL BE DELIVERED IN ACCORDANCE WITH THE POLICY PROVISIONS

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.

Refer to the slide to view the Common Policy conditions language.



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.


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 a 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 25 2009/01 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

Agents and insurers should use the most current ACORD 25 Certificate of Liability Insurance. Once a form is

outdated, it may no longer be compliant with law, including state insurance department rules. Depending

on the state, agents and insurers using a non-compliant form are subject to penalties and fines.

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.


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.

Who receives a copy of the certificate?

• Insured

• Certificate Holder

• Client’s File

• Insurance Company


Completed Certificate continued

Sending the Certificate to the Insurance Company

Over the past few years, many insurance companies have instructed their agents NOT to send them the


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.

Please refer to Section 4 ACORD Certificate p53-56 (AI) to complete the Knowledge Checks at this time.


Problems with Certificates

Section 4 E&O Risks p57 (AI)

Learning Objective: Understand the errors and omissions exposures inherent in the administration of


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.


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.

Insured loses a job or a contract, or penalties are invoked because certificates are not provided on a timely

basis.

Agent acts outside the scope of their authority are usually held responsible for acts that provide coverage

when none exists or they increase the intent of coverage

Certificate holders create their own certificate of insurance attempting to broaden coverage. Agents using

these forms are beyond their scope of authority

Agent fails to obtain the requested insurance. Limits not high enough, additional insured endorsement not

requested, etc.



E&O Risks continued

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.


E&O Risks continued

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.


E&O Risks continued

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 completes 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 wishes 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.

4. To quote any wording amending a policy unless the policy has been amended.

The certificate holder may require special wording on the certificate that would reflect an amendment to

the policy. This is certainly acceptable, but only after the insurance company has agreed to amend your

insured’s policy.


E&O Risks continued

With all of the disclaimer wording on the certificate, how could a certificate create liability?

Courts have held that a certificate is not a contract between the certificate holder and the insurance

company. For one thing, an essential element of a contract, the “consideration” (or fee), is absent.

However, courts also have found agents liable for issuing a certificate inaccurately. The basis for this is that

the certificate holder relied upon the certificate, which contained inaccurate information, because of the

agent’s negligence.


The workflow should incorporate practices which prevent inaccurate or improper information from making

its way onto a certificate of insurance.

Most certificates are processed using an agency management system. ACORD certificate forms used by the

agency are pre-filled with each customer’s data. The system provides the certificate log and tracking of

certificate holders when coverages change.


Agencies using a manual system usually have a master certificate associated which each insured’s account,

which is updated when coverages change.


E&O Alert

Accuracy is crucial.

Unfortunately, certificates too frequently must be issued before close of business on the date requested.

Slowing down the process could result in another problem – the agency did not issue the certificate in a

timely fashion and the customer lost the contract.

Nonetheless, placing a second person in the work flow for certificate processing to check for the accuracy of

the certificate and other potential problems is a recommended practice.

Let’s finish our course by looking at more of those recommended practices now.


Learning Objective: Describe the steps in the certificate administration process.

Certificate Administration

Step 1 Fill out a certificate request form.

Be careful to note each requirement. Is there a requirement which would need an endorsement to the

policy? What is the agency's authority with respect to this certificate?

• Non standard certificates are usually forwarded to the insurer

• Does the carrier allow your agency to issue a certificate for this type of coverage?

• Does the policy have any blanket provisions for additional insured status or waiver of subrogation?

Does your insured have a contract? If so, request the insurance portion of the contract, is the request for

evidence of claims made coverage?

If so, assign a technically proficient employee to handle claims made certificates.

Step 2 Contact the Insurer


If the certificate can be issued without modifying the policy, go on to the next step. Requests for policy

modifications are handled at the insurer's website. Make sure that any endorsement request has been

approved before issuing the certificate. Make note of any requirement which cannot be met.

Step 3 Enter the information onto the form and issue

Carefully inspect each field for accuracy. The agency management system pre-fills the insured's data onto

the form, but it may not check off each coverage area. The employee issuing the certificate should have

access to the ACORD instructions and to agency and company guidelines for certificates. Does your

organization provide a checklist for certificates of insurance? Can a second person step into the work flow

to inspect certificates of insurance? Issue the certificate with the insurer's permission.

Step 4 Mail and mark file for follow up if needed or

Use standardize wording when communicating about requirements that were not met. Email or mail the

certificate, sending a copy to the certificate holder, a copy to the insured, and a copy to the insurer. If using

an older form, make sure the second page of the certificate, containing an important disclaimer, is included

in the mailing. "Tickle" the insured's file for follow up to any endorsement requests. Typically, the insurer is

responsible for notice of cancellation. However, the agency may handle this in some cases.


Who Handles Certificates in your Organization?

The agency's procedures for certificate issuance should be reviewed and updated annually, and followed by

all agency personnel.

In addition to the agency staff issuing the certificates, some agencies allow clients to issue their own

certificates from the agency's website. Others have outsourced certificate issuance to an outside company.

And, some insurance companies issue the certificates to their policyholders directly.

The best qualified person is accurate and detail-oriented.

• CSR

• Producer

• Technical assistant

• Receptionist

• Web access

• Outsource company

• Insurer




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.


additional insureds & certificates of...

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