Transcript Information – Your Business Lifeline Managing Your Risk

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, LLC
Director of Education
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What this class will cover
1. Course overview on available forms
and their applicability
2. Completing documents correctly
3. Additional Insureds added to liability
policies
4. Common requirements found in
business contracts
5. Common AI endorsements
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Certificate Basics
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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?
Certificates of insurance are
crucial to transacting
business
Many types of situations:
• Leases
• Vendor agreements
• Construction contracts
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ACORD Certificate of Liability Insurance
This form is used as the insurance
industry standard form
Accepted by most entities
Insurance companies typically do not
create their own Certificates
Insurance agents cannot create their
own
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Policy: Contract Between Insurer and
Insured
Insured Enters Into
Business Contract
Agrees to Certain
Insurance
Requirements
Agent Issues Cert –
NOT Company
The Insurer Did
NOT Enter Into That
Other Contract
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Primary Areas of Concern
Changing the cancellation
provision
Listing parties on the
Certificate as Additional
Insured
Waiver of Subrogation /
Primary, Non-contributory
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ACORD Forms Instruction Guide
Agents or
brokers should
not change any
provision on this
form without
prior consent of
the issuing
company.
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The ACORD
Certificate
should be issued
only in
compliance with
company
instructions.
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Results of Improper Issuance
Substantial litigation for decades
• Recipient / insurance company / agent
• Insurance company / agent
State Insurance Departments are beginning
to regulate use of Certificates
ACORD company has revised the form
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Who Should Issue Certificates?
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Retailers
Agents
• Represents Insurance Company
• May issue Certificates
• Does NOT authorize the agent to
change the insurance policy
without an endorsement from
insurer
Brokers
• Represents Insured
• NOT authorized to issue
Certificates
• Authorization in writing from SL
Broker or Insurance Company
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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
The forms are under copyright
protection
• Fill in
• NO changes
• Licensing agreement rules
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State Regulation of Certificates
Some states
expressly prohibit
modification of
certificates as
they are filed
with the state
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In these states,
any modifications
must be filed
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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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Florida: Memorandum OIR-03-003M
• 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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Florida: Memorandum OIR-03-003M
• 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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Georgia: Directive 11-EX-2
• 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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Georgia: Directive 11-EX-2
• 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
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Massachusetts - Bulletin 2011-07
• 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 - Bulletin 2011-07
• 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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Massachusetts - Bulletin 2011-07
• 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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Massachusetts - Bulletin 2011-07
• 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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Massachusetts - Bulletin 2011-07
• 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
Information
not
supported by
policy
Wrong
insurance
company
listed
Changing
cancellation
provision
Primary, NonContributory
End. Omitted
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Broker placed
business no
prior written
approval
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Common Errors
Waiver of
Subrogation End.
Omitted
Stating wrong edition
date of AI
endorsement
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Altering
Certificate
Using Non-ACORD
Certificates
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Possible Consequences
Denial of
coverage by
insurer or
Risking your
future
Cross-complaint
from insurer
Risking suit from
insurance
company
Suit From
Certificate
Holder
Liability for
Uncovered Loss
to Third Party
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Denial of
Coverage Under
E & O policy
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Agents Are Very Vulnerable
The large companies
receiving many of the
Certificates are very
aware that you and your
E & O coverage is the
last resort
• Information not verified
• Your problem if coverage is
not in place
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Certificate of Liability Insurance
Have your reference materials at
hand
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Form Changes
One page – not two
• Many agencies have been suppressing the
second page
Disclaimers are at the top of the
page
• More visibility
• Redundancy removed
Columns Expanded for Additional
Insured and Subrogation Waivers
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Form Changes
“Special Provisions” Block Revised
Description Of Operations / Locations
/ Vehicles
“Exclusions Added By Endorsement”
language removed
Notice of Cancellation Revised
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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
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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
Reserved
Paid
Claim
Submitted
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Show
original
limits on
the
Certificate
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Related Issues
Standard Policies
Defense Costs
Notification
• Contract
requires
“standard”
occurrence CGL
• Insured has
modified
• Must advise
insured in
writing
• “Standard”
liability policies
defense is in
addition to limit
• Policy has
defense inside
the limit
• Must advise
insured in
writing
• Does NOT
belong on the
Certificate of
Liability
Insurance
• Letter (or email)
to insured
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Guidelines
Deductibles
Retentions
True Deductible
Applies to Damages
and Defense Costs
Named Insured
Reimburses
Named Insured
Pays
No Need to Show
Show on Certificate
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Related Issues
Additional Insured Requirements
Primary, Non-contributory wording
Waiver of Subrogation
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Additional Insured Requirements
Language on a Certificate was NEVER
binding upon the insurance company
The party requesting this coverage
MUST have an endorsement to the
policy
• Wording on a Certificate is irrelevant
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Primary, Non-Contributory Wording
Language on a Certificate was NEVER
binding upon the insurance company
The party requesting this coverage
MUST have an endorsement to the
policy
• Wording on a Certificate is irrelevant
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Waiver of Subrogation
Policyholder is allowed
to waive subrogation in
General Liability and
Business Auto policies
Waiver of subrogation is
not generally allowed
on Workers’
Compensation policies
• An endorsement is
available with both of
these policies for
express agreement if
desired
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Business Contract vs. Insurance
Business Contract
Requires Insurance
Requires a Certificate
Insurance Policies
Often Do Not Match Requirements
Certificate of Liability Insurance
May Not Match Requirements
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Must Match Insurance
Policies
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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
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Types of Insureds
Named insureds – usually referred to as
“you” or “your”
Automatic insureds
Additional insureds – non-automatic
must be added by endorsement
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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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What is an Additional Insured?
• 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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What is an Additional Insured?
• 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
Determine
Interest Before
Adding
Endorsement
Required and
Attach
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Endorsement
Available (Type
/ Edition)
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Additional Insureds
• Additional Insured
• Verify no language
implying on WC
Excess /
Umbrella
• Automatic follow
form?
• Form allow changes
to primary?
Primary
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• Do NOT
automatically add
Primary /
Excess
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Basic Considerations Regarding Additional
Insureds
When does the
coverage
requirement end in
the business
contract?
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Additional insured
status can provide
better response for
the additional
insured rather than
just contractual
liability
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Basic Considerations Regarding Additional
Insureds
Can better protect
Named Insured’s
coverage as defense
costs are in addition
to the limit for the
Additional Insured,
rather than within
the limits under
contractual
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Additional Insureds
are not granted
automatic notice of
cancellation or nonrenewal
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Basic Considerations Regarding Additional
Insureds
Blanket
additional
insured
• Used on accounts where a
significant number of Additional
Insureds are needed
• Review the language for
applicability
• When required by contract
• To the extent required by
contract
• Can provide broader coverage
than the business contract
requires
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Reasons for Requesting Additional Insured
Status
It may assure greater safety in a risk
transfer - a “safety net" for a hold
harmless agreement
It can give direct rights under the other
party's insurance to those parties who
attempt to transfer potential risk
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Reasons for Requesting Additional Insured
Status
It may protect the party/ies who
attempt the transfer of potential risk
from subrogation
Potential for higher total limits
available
Potential reduction of insurance cost
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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 20Center
11- Additional Insured-Managers
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Lessors
of Premises
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 Associated with Additional
Insureds
• 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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Problems Associated with Additional
Insureds
 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
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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 Avoiding
the E&O Exposure inherent in COI
issuance and AI endorsements
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Avoiding E&O
Train all staff on Certificate issuance
• Do NOT assume everyone knows
• Only use licensed staff issue Certificates
Show the limits as provided on the policy
Promptly request appropriate endorsements
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Avoiding E&O
Use care when setting up
“master” certificates
Use the proper form/edition
date
Get carrier approval to use
non-ACORD forms
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Avoiding E&O
Make sure
the agency
is the
“authorized
representati
ve” of all
carriers on
the
certificate
Document
who
requested
the
certificate
and how it
was
transmitted
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Don’t alter
certificate
wording
without
insurer
authorizatio
n in writing
and by
endorsemen
t to the
policy
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Avoiding E&O
Review your agency
management system
authorization levels and
limit access to the certificate
function to specific users
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Customize the level of
access to specific functions
in order to minimize the risk
of unauthorized access and
use
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Avoiding E&O
Alert the insured to charges for A/I, Primary or Waiver of
Subrogation endorsements
Be careful when reviewing contracts on behalf of the insured
– stick with insurance issues
Promptly request appropriate endorsements
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Certificate Procedures
Show retentions as provided on the policy
Audit Certificates quarterly
Accuracy is key
Verify accuracy of “master” certificates
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Certificate Procedures
When renewing coverage, request your
insured (in writing) to update the
Certificate holder and Additional Insured
list with the parties they are required by
contract to leave on the policy
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Certificate Procedures
• 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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