The Uncertainty of Certificates
Brokers and agents are often asked by their clients seeking to win bids for business to certify coverages that aren’t in their policies, strike language in the standard certificate form to comply with contractual requirements or issue certificates that include additional insureds that are not named on their policies.
As these issues continue to simmer in the marketplace, a majority of states have enacted laws and regulations to limit problems arising from excessive demands, and making it illegal for agents and brokers to list verbiage on certificates of insurance that does not accurately represent what the policy covers.
The new state requirements are due in large part to extensive lobbying efforts by groups like the Independent Insurance Agents and Brokers of America Inc. in Alexandria, Va., said Bill Wilson, the group’s associate vice president of education and research.
“We didn’t do it to be punitive to agents, but rather to give them a reason why they can’t put certain wording on a COI if it misrepresents the policy terms,” Wilson said. “It’s illegal for them to do so, and that’s why they have to refuse.”
Problems often arise when “savvy” landlords, lenders, contractors and rental companies dictate specific insurance requirements that some agents and brokers “are just not familiar with, or are paying much attention to,” he said.
Susan McCaffrey, area vice president, senior client service manager at Arthur J. Gallagher & Co. in Kansas City, Mo., said she has encountered such problems when taking over accounts from other brokerage firms.
For example, a property owner might require a client to provide a workers’ compensation alternate employer endorsement to protect the owner if one of the client’s employees is injured on their property, McCaffrey said.
When the team reviews contracts that have already been signed and see requirements that aren’t currently covered, such as certain pollution, or errors and omissions coverage, they often have to secure that coverage at an additional cost. — Tim Gallagher, director of commercial lines, Marsh & McLennan
Most national carriers are willing to provide the required forms, but smaller or regional insurance companies are not as willing to provide the required forms or will charge a premium.
Barb Wurst, a client executive in the Minneapolis office of Marsh & McLennan Agency LLC, said her team sometimes encounters outdated verbiage cited from forms, such as the 1985 version of the additional insured form that is no longer used in the industry, or erroneous requirements that need to be clarified, such as a requirement to remove the care custody and control exclusion in the general liability policy.
“Reviewing contracts and the certificate of insurance requirements before the contracts are signed is critical to being able to negotiate with carriers,” Wurst said. “If we can review them before our clients sign the contract, it makes everything down the road go smoother.”
When the team reviews contracts that have already been signed and see requirements that aren’t currently covered, such as certain pollution, or errors and omissions coverage, they often have to secure that coverage at an additional cost, said Tim Gallagher, Marsh & McLennan’s director of commercial lines.
“That’s never a fun conversation to have with our clients,” Gallagher said.
Certificates of insurance are merely “snapshots” of policies, and should never be relied upon in the same manner as the actual policy, said Bryson Popham, managing partner in the Annapolis, Md., law firm of Popham & Andryszak.
Moreover, certificates can be rendered obsolete immediately following issuance, because the policies they describe can be cancelled the next day.
“The best a typical certificate can do is state that an insurer will ‘endeavor’ to notify a certificate holder when coverage is terminated, but again, that is little protection for the certificate holder,” Popham said.
“If a claim arises, however, the insurance company is bound only by the policy, not the certificate that someone else amended.” — Bryson Popham, managing partner, Popham & Andryszak
Sometimes an organization, such as a general contractor or a municipality, will require a firm wanting to work with them be named as an additional insured on the certificate, or require that the firm has special liability coverage, he said.
Occasionally, a bidding contractor may add the requested language on their certificate in order to win the contract.
“If a claim arises, however, the insurance company is bound only by the policy, not the certificate that someone else amended,” Popham said. “The best advice is to never amend a certificate — the only results will be bad ones.”
Third parties, such as quasi-governmental agencies, are increasingly using vendors to electronically process certificates of insurance for them, said Ellen Perle, chief counsel for regulatory law and licensing at Aon Risk Solutions in New York City.
Rather than being able to use ACORD forms or manuscript certificates that have been approved by states, brokers are pressured to download data into these vendor systems containing fields requiring only “yes” or “no” responses, and so may not always comport with the actual terms of the policies or the type of information subject to disclosure on certificates.
Sometimes brokers can’t input information in certain fields without first having to guarantee terms.
“On top of that, fees are often imposed on producers just to access the systems,” Perle said. “In addition to the regulatory hurdles and the resources and expense incurred by producers to use these systems, the potential for misuse or mistaken use of the data by others may also present a risk.”