Potential for Problems

The Uncertainty of Certificates

Certificates of insurance are often required, but risk managers should understand that it is always the actual policy that controls coverage.
By: | January 26, 2015 • 4 min read

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.

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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.

Inaccurate Information

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.

Limited Protection

“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.”

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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.”

Katie Kuehner-Hebert is a freelance writer based in California. She has more than two decades of journalism experience and expertise in financial writing. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

4 Companies That Rocked It by Treating Injured Workers as Equals; Not Adversaries

The 2018 Teddy Award winners built their programs around people, not claims, and offer proof that a worker-centric approach is a smarter way to operate.
By: | October 30, 2018 • 3 min read

Across the workers’ compensation industry, the concept of a worker advocacy model has been around for a while, but has only seen notable adoption in recent years.

Even among those not adopting a formal advocacy approach, mindsets are shifting. Formerly claims-centric programs are becoming worker-centric and it’s a win all around: better outcomes; greater productivity; safer, healthier employees and a stronger bottom line.

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That’s what you’ll see in this month’s issue of Risk & Insurance® when you read the profiles of the four recipients of the 2018 Theodore Roosevelt Workers’ Compensation and Disability Management Award, sponsored by PMA Companies. These four programs put workers front and center in everything they do.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top,” said Steve Legg, director of risk management for Starbucks.

Starbucks put claims reporting in the hands of its partners, an exemplary act of trust. The coffee company also put itself in workers’ shoes to identify and remove points of friction.

That led to a call center run by Starbucks’ TPA and a dedicated telephonic case management team so that partners can speak to a live person without the frustration of ‘phone tag’ and unanswered questions.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” — Steve Legg, director of risk management, Starbucks

Starbucks also implemented direct deposit for lost-time pay, eliminating stressful wait times for injured partners, and allowing them to focus on healing.

For Starbucks, as for all of the 2018 Teddy Award winners, the approach is netting measurable results. With higher partner satisfaction, it has seen a 50 percent decrease in litigation.

Teddy winner Main Line Health (MLH) adopted worker advocacy in a way that goes far beyond claims.

Employees who identify and report safety hazards can take credit for their actions by sending out a formal “Employee Safety Message” to nearly 11,000 mailboxes across the organization.

“The recognition is pretty cool,” said Steve Besack, system director, claims management and workers’ compensation for the health system.

MLH also takes a non-adversarial approach to workers with repeat injuries, seeing them as a resource for identifying areas of improvement.

“When you look at ‘repeat offenders’ in an unconventional way, they’re a great asset to the program, not a liability,” said Mike Miller, manager, workers’ compensation and employee safety for MLH.

Teddy winner Monmouth County, N.J. utilizes high-tech motion capture technology to reduce the chance of placing new hires in jobs that are likely to hurt them.

Monmouth County also adopted numerous wellness initiatives that help workers manage their weight and improve their wellbeing overall.

“You should see the looks on their faces when their cholesterol is down, they’ve lost weight and their blood sugar is better. We’ve had people lose 30 and 40 pounds,” said William McGuane, the county’s manager of benefits and workers’ compensation.

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Do these sound like minor program elements? The math says otherwise: Claims severity has plunged from $5.5 million in 2009 to $1.3 million in 2017.

At the University of Pennsylvania, putting workers first means getting out from behind the desk and finding out what each one of them is tasked with, day in, day out — and looking for ways to make each of those tasks safer.

Regular observations across the sprawling campus have resulted in a phenomenal number of process and equipment changes that seem simple on their own, but in combination have created a substantially safer, healthier campus and improved employee morale.

UPenn’s workers’ comp costs, in the seven-digit figures in 2009, have been virtually cut in half.

Risk & Insurance® is proud to honor the work of these four organizations. We hope their stories inspire other organizations to be true partners with the employees they depend on. &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]