certificates and additional insureds - the five key issues you must know

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Certificates and Additional Insureds - The Five Key Issues You Must Know

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Your Instructor Today

Marjorie L. Segale, AFIS, CISC, RPLU, CIC, CRIS, ACSR, CISR

Insurance Community Center, LLCDirector of Education

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What this class will cover

1. Course overview on available forms and their applicability

2. Completing documents correctly3. Additional Insureds added to liability

policies4. Common requirements found in

business contracts5. Common AI endorsements

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Find us on LinkedIn & Facebook!4

Certificate Basics




What Is A Certificate?

• A certificate of insurance is a document issued by or on behalf of an insurance company to a third party who has not contracted with the insurer to purchase an insurance policy

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What Is A Certificate?

• A business agrees to provide evidence of certain coverages, such as General Liability, Business Auto Liability or Workers’ Compensation due to a business agreement between themselves and another party

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Why Are Certificates Used?

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ACORD Certificate of Liability Insurance

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Policy: Contract Between Insurer and Insured

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Primary Areas of Concern

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ACORD Forms Instruction Guide

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Results of Improper Issuance

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Who Should Issue Certificates?




Retailers

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Why Change the COI?

To keep you out of trouble and to comply with various state laws and

court decisions

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ACORD 25 Concerns

• 3 major problems with Certificates• Insurers unwilling to provide cancellation

notice to AI• Improper issuance by insurance agents• Onerous requirements from recipients

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ACORD Concerns

• The insurance policy cannot be changed with words on a COI

• The First Named Insured receives notice of cancellation

• If the AI requires notice, the policy must be endorsed• There will be a premium charge for this

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ACORD Forms Instruction Guide (FIG)

• “Agents or brokers should not change any provision son this form without prior consent of the issuing company. The ACORD Certificate should be issued only in compliance with company instructions. ACORD recommends that the Certificate NOT be used in the following situations: to waive rights; to quote wording from a contract: to attach to an endorsement; to quote any wording which amends a policy unless the policy itself has been amended.”

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Intellectual Property Issue

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State Regulation of Certificates

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State Regulation of Certificates

• Almost all states will not allow any change in a certificate of insurance that would attempt to modify a policy unless the revised certificate is filed and approved. In these states, this form can only be changed to reflect the terms and conditions of the policy on which it is reporting. Such change(s) must be approved in advance by the insurance carrier that issued such policy.

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Florida: Memorandum OIR-03-003M

• The purpose of this Memorandum is to address the improper practice of modifying certificates of insurance. It has been brought to the attention of the Office of Insurance Regulation that some individuals or entities may be printing or altering certificates of insurance to incorporate ‘hold harmless’ agreements or other types of clauses in an attempt to modify the terms or conditions of the underlying insurance policy.

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• Certificates of insurance generally serve only as evidence of insurance in lieu of an actual copy of an insurance policy. An insurer is under no obligation to abide by any certificate of insurance which has been modified by any person or entity which does not have actual or apparent authority to do so.

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• Distribution of a certificate of insurance which has been modified without authorization and which purports to alter the provisions of the underlying policy, misrepresents the conditions or terms of the insurance policy in violation of Section 626.9541(1)(a)1, Florida Statutes, thereby subjecting the person or entity modifying the certificate to license discipline and administrative fines.

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Georgia: Directive 11-EX-2

• For purposes of this Directive, “certificate” or “certificate of insurance” means any document or instrument, no matter how titled or described, which is prepared or issued by an insurer or insurance agent as evidence of property or casualty insurance coverage but does not include an actual copy of the insurance policy or insurance binder.

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• In short, a certificate of insurance is a summary of the referenced insurance policy and does not, and cannot, modify or amend the referenced insurance policy or confer any right upon the certificate holder.

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• The issuance or modification of a certificate of insurance that in any way misrepresents any material term, condition, coverage, or other provision as set forth in the underlying policy, or purports to amend or alter the underlying insurance policy -- or assisting in such issuance or modification -- violates Georgia law and subjects the violator to civil and criminal penalties.

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New Hampshire: Bulletin No. 09-048-AB

• Issuing a Certificate of Insurance or other evidence of insurance coverage that misrepresents the policy terms, conditions or coverage is a violation of producer licensing laws and may subject the producer to license revocation.

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Oregon

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Oregon

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Indiana: Bulletin # 170

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Indiana: Bulletin # 170

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Massachusetts - Bulletin 2011-07

• Certificates of insurance, evidence of coverage forms and binders (collectively hereafter referred to as “certificates of insurance”) are intended to summarize insurance policies, including liability limits, in lieu of providing the actual polices to insureds or third parties as proof of coverage.

• The Massachusetts Division of Insurance (“Division”) has been informed, however, that some insurance companies and insurance producers are being asked to provide certificates of insurance that purport to amend, extend or otherwise alter the terms of insurance provided by the underlying policy. The purpose of this Bulletin is to advise insurers and insurance producers that certificates of insurance are not the proper method by which to amend a policy, that amending such certificates of insurance may create an errors and omissions exposure, and that this activity may violate the Massachusetts insurance laws.

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• Certificates of insurance are not actual policies of insurance, and as certificates of insurance, they do not and cannot be used to amend, extend, or alter insurance coverage afforded by the underlying policies.

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• Massachusetts law, specifically M.G.L. c. 175, §§ 2B and 192, requires that all insurance policy forms, as well as riders, endorsements and applications designed to be attached to such policy forms, be filed with the Division.

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• When an insurer or insurance producer executes a certificate of insurance that attempts to do more than merely offer a synopsis or summary of the policy, the insurer or producer risks the creation of obligations that are not payable by the underlying policy.

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• This action may violate M.G.L. c. 175, § 181 and M.G.L. c. 176D, § 3(1)(a) which prohibit the misrepresentation of the terms or benefits of any insurance policy.

• This action also may violate M.G.L. c. 176D, § 3(9)(a), which makes it an unfair claim settlement practice to misrepresent the “pertinent facts or insurance policy provisions relating to coverages at issue.”

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• Moreover, should the additional terms and conditions contained in the certificate of insurance be in conflict with, or otherwise alter, the policy forms, riders, endorsements or applications the insurer has filed with the Division, the insurer and/or insurance producer may have violated M.G.L. c. 175, § 2B by issuing, delivering or otherwise using a policy form that has not been filed with the Division.

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Texas: Bulletin #B-0035-06

• The Department reminds all carriers and agents that a certificate of insurance must clearly and accurately state the insurance coverage provided.

• A certificate of insurance that obscures or misrepresents the insurance coverage provided under the insurance policy is a violation of the Insurance Code, including §§541.051, 541.061, and 4005.101(b)(5) and (6).

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Texas: Bulletin #B-0035-06

• Additionally, agents are reminded that they are prohibited from altering the terms or conditions of a policy under Insurance Code §§4001.051(c) and 4001.052(b). Violation of the provisions of Chapter 541, 4001, or 4005 may result in administrative penalties and/or license revocation.

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State Bulletins

• For current state bulletins: http://www.iiaba.net/eprise/main/VU/NonMember/WilsonCertLawsRegs.htm

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Common Errors

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Common Errors

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Possible Consequences

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Agents Are Very Vulnerable

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Certificate of Liability Insurance

Have your reference materials at hand

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Form Changes

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Form Changes

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New Cancellation Language

SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE

EXPIRATION DATE THEREOF, NOTICE WILL BE DELIVERED IN

ACCORDANCE WITH THE POLICY PROVISIONS.

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Notice of Cancellation

• Notice of cancellation is a POLICY right, not a voluntary service The policy determines who gets notice of

cancellation for what reason(s), and with how much advance notice

• NONE of the ISO additional insured endorsements provide for any notice of cancellation to the AI AND restrict notice to the First Named Insured

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Policy Cancellation Language

A. Cancellation 1. The first Named Insured shown in the Declarations may cancel this policy by mailing or delivering to us advance written notice of cancellation. 2. We may cancel this policy by mailing or delivering to the first Named Insured written notice of cancellation at least:

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Policy Cancellation Language

a. 10 days before the effective date of cancellation if we cancel for nonpayment of premium; or b. 30 days before the effective date of cancellation if we cancel for any other reason.

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Effect of Change

• Follows policy language• Reduces improper issuance by agents• Complies with state regulations• Business contracts need to be reviewed

by both contractual parties The contract could require that the other

contractual party be required to notify in the event of coverage cancellation

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What Are Insurance Companies Doing?

• Will not review certificates• MGAs / Wholesalers being more careful

about reviewing certificates

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Information About Limits of Liability




Impairment of Aggregate

• The ACORD Certificate is introduced with the following lead in language:“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 may have been reduced by paid claims.”

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Impairment of Aggregate

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Related Issues

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Guidelines

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Related Issues

Additional Insured RequirementsPrimary, Non-contributory wording

Waiver of Subrogation

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Additional Insured Requirements

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Primary, Non-Contributory Wording

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Waiver of Subrogation

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Business Contract vs. Insurance

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Coverage Confirmation

Help Your Client With Their Business Practices, Contracts and Agreements

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Receiving Coverage Confirmation

• Make sure the Certificate is unaltered• Request copy of policy language to

support insurance requirements Policy Endorsements

Additional Insured Endorsement Waiver of Subrogation Primary, Non-Contributory

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Receiving Coverage Confirmation

• Verify limits of liability insurance are at least equal those required by the contract

• Verify that any names shown on the endorsements are correct

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Match Contract With Coverage

• Check contracts for appropriate and available insurance requirements

• The agent/broker needs to educate their clients about these issues Will not eliminate the push-back on these

changes but may help going forward Watch out for new language in contracts

that the 2009 edition of the ACORD is no longer acceptable

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Match Contract With Coverage

• Insurance buyers will need to Submit proper RFP identifying insurance

specifications that will be provided Teach your clients to review contract

language before signing

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Additional Insureds




Types of Insureds

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What is an Additional Insured?

• A person or organization, other than the named insured, who is protected by the terms of the policy as an insured

• These are in addition to those who have insured status within the standard policy.

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• Typically required in a business contract of which the Named Insured is a party

• These parties have full rights to the policy protection, to the extent of the wording on the additional insured endorsement

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• Generally added by endorsement or included by a company specific provision that is triggered by some requirement for this status by a written contract or agreement entered into by a named insured

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Additional Insureds

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Additional Insureds

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Basic Considerations Regarding Additional Insureds

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Reasons for Requesting Additional Insured Status

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Reasons for Requesting Additional Insured Status

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Why Would an Insured Want to Add an Additional Insured?

• Relationship with the named insured Example:

Members - Clubs & Churches CG 20 22 - Additional Insured - Church

Members and Officers

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Why Would an Insured Want to Add an Additional Insured?

• People or organizations with which the named insured has a business relationship and, typically, a contractual relationship Example:

Project owners on the policies of general contractors CG 20 10 - Additional Insured - Owners, Lessees or

Contractors – Scheduled Person or Organization CG 20 11- Additional Insured-Managers or Lessors of

Premises

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Problems Associated with Additional Insureds

• Problems for named insured Diminution of policy limits Adverse affect on insured’s experience

modification, renewability Unintended coverage provided Named Insured pays retention/deductible

on behalf of the AI, in addition to paying on their own behalf

Defense conflicts

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• Problems for the additional insured Loss of defense control "Other Insurance" conflicts Increased probability of disputes over

coverage Limited coverage under current forms

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Loss of immunity – political subdivision (e.g. city or county) may be granted immunity or provided limitation to liability by statute. Being added to another’s policy may waive such immunity.

Depending on someone else’s insurance program can be dangerous

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Significant Changes by ISO Affected Many Endorsements




Changes in Additional Insured endorsement wording

• CGL AI endorsements were revised in 2004 – restrictive language

• AI is covered as long as the loss occurred caused at least in part by the Named Insured• Contractual obligations will likely be

broader than the insurance coverages available

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CG 2010 – Owners, Lessees or Contractors

• Provides coverage for persons or organizations involved in construction projects

• 1985 edition No scheduled person or organization AI covered for sole negligence Ongoing AND completed operations Limited availability in the marketplace

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CG 2010 – Owners, Lessees or Contractors

• Various editions since 1985 changed the endorsement significantly

• The current 2004 edition Scheduled persons or organizations Ongoing operations Loss must be caused, at least in part, by the

named insured

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CG 20 37 - Owners, Lessees or Contractors–Completed Operations

• Used with or without CG 2010• AI covered for completed operations• Provides an opportunity for an additional

premium charge• Triggered if the Named Insured contributes

in some way to the loss (or a party acting on their behalf)

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CG 20 11 – Managers or Lessors of Premises

• Scheduled manager or landlord of the premises leased to the Named Insured

• Applies to ownership, maintenance or use of the leased premises

• Applies as long as the Named Insured is actually a tenant

• Does NOT apply if the loss arises out of construction or alterations by or behalf of the landlord

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CG 20 28 - Lessor of Leased Equipment

• Scheduled owner• If the insured has leased “mobile

equipment” you may need to endorse the BAP (CA 20 01 Additional Insured and Loss Payee ) AND the CGL

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CG 20 15 – Vendors

• Scheduled person or organization• Must be a vendor of the Named

Insured’s product• Used in manufacturing or distribution

relationships

• No coverage if the vendor modifies the product or re-labels the product

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Commonly Used Blanket Additional Insured Endorsements

• Additional Insured – Owners, Lessees, or Contractors – Automatic Status When Required in Construction CG 20 33 Essentially the same as CG 20 10 but does

not require scheduling the person or organization

Triggered when required by written contract or agreement

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Commonly Used Blanket Additional Insured Endorsements

• Additional Insured – Lessor of Leased Equipment – Automatic Status When Required in Lease Agreement with You CG 20 34 Essentially the same as CG 20 28 but does

not require scheduling the person or organization

Triggered when required in a written contract or agreement

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“Additional Insured” Endorsements Used in Other Coverage Lines

Even though the title of most of these endorsements do not say

“Additional Insured” the end result is that additional parties are added as

insureds

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Business Auto

• Designated Insured – CA 20 48• Lessor – Additional Insured and Loss

Payee – CA 20 01• Employees As Insureds – CA 99 33• Employee As Lessor – CA 99 47• Individual Named Insured – CA 99 17

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Business Auto

• Drive Other Car Coverage – Broadened Coverage for Named Individuals – CA 99 10

• Hired Autos Specified As Covered Autos You Own CA 99 16

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Workers’ Compensation

• Alternate Employer Endorsement – WC 00 03 01A

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Solutions for Avoidingthe E&O Exposure inherent in COI issuance and AI endorsements

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Avoiding E&O

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Avoiding E&O

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Avoiding E&O

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Avoiding E&O

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Avoiding E&O

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Certificate Procedures

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• Advise the insured of certificate procedures Educate your customers before they sign the

business contract Alert the insured to A/P requirements for

Additional Insured endorsements Work with your customers to determine their

responsibility to receive certificates (particularly when there is policy language addressing their responsibility)

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Basics to Review With Your Customer

• When asked to use the old or change the language on the forms, explain that they no authority to revise the documents

• Explain that certificates are filed forms and using old edition dates may violate state law

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Summary

• Verify you are using the most current version of the ACORD COI

• Advise your customers of the changes• Do NOT continue to use the older version of

the COI – the only reason you would do so would be to add inappropriate wording and changing the cancellation notice Could result in spending thousands of dollars in

legal fees to pursue litigation or to defend oneself from litigation

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certificates and additional insureds - the five key issues you must know

Documents

certificate of insurance

underlying insurance

insurance company

evidence of insurance

mcertificates of insurance

insurance carrier

office of insurance

certificate basicswhat