1. No category

Certificates of Insurance
Contractual Liability and Additional Insured Issues
OR
“HOW I GOT A JOB IN THE PRISON LAUNDRY”
Presented by the
Independent Insurance Agents & Brokers of America
in conjunction with the
Big “I” Virtual University
2nd Edition
March 2009
Copyright © 2008-2009 by Independent Insurance Agents & Brokers of America
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Disclaimer
The purpose of this program is to assist agents and brokers in considering issues relevant to certificates of
insurance. This program includes only general information, and is not intended to provide advice tailored to any
specific insurance situations. It was prepared solely as a guide, and is not a substitute for agents and brokers
independently evaluating any relevant business, legal or other issues, and is not a recommendation that a
particular course of action be adopted. If specific advice is required or desired, the services of an appropriate,
competent professional should be sought.
Copyright Notice
Copyright © 2006-2009 Independent Insurance Agents & Brokers of America, Inc. All rights reserved.
Presentation of this program, including reproduction or display of any printed or electronic materials is limited to
IIABA national and state associations in accordance with the permissions outlined below.
All information and content included in this material, including but not limited to (i) text, graphics, logos, icons or
images; (ii) data and content compilations; and (iii) software, is the property of the Independent Insurance Agents
& Brokers of America, Inc. (IIABA) or its content or software suppliers and is protected by United States and
international copyright laws. You may not modify, copy, distribute, transmit, display, publish, sell, or license any
information from this material without the express written consent of IIABA and any applicable third-party owner
or licensor. You may not create derivative works, or use any information or content for commercial or public
purposes without the express written consent of IIABA and any applicable third-party owner or licensor. In
addition, you may not reproduce, transmit, transcribe, store in a retrieval system, or translate into any human or
computer language any part of the material in any form or by any means whatsoever without the express written
consent of IIABA. Such consent may be requested by contacting Bill Wilson at [email protected].
Includes copyright material of Insurance Services Office, Inc.. ACORD Corporation, and International Risk
Management Institute, Inc. with their permission.
Reproduction and Presentation Permissions
This program was designed to be presented by IIABA state associations to their membership and seminar
participants. We recognize that seminars based on this program may be presented on behalf of state associations
by independent contractors, as opposed to staff members. That is permissible. However, this program cannot be
offered independently by such instructors to non-IIABA groups nor included in their marketed listing of available
courses unless they are VU faculty members and even then not in competition with our national or state
associations.
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Acknowledgements
The foundation of this program is a series of Big “I” Virtual University web site articles, culminating with the
white paper, “Certificates of Insurance: Issues and Answers,” written by myself and members of our 50-person
volunteer faculty and published in our free bi-weekly email newsletter, The VUpoint. To subscribe to this free
newsletter, go to:
http://www.iiaba.net/VU/NonMember/newsletter.htm
This information was supplemented by literally hundreds of emails, articles, and conversations with insurance and
risk management professionals from around the country.
Once the draft of the white paper was completed, I distributed it to over 100 agents, consultants, educators,
attorneys, and risk managers for their feedback. That process continues to this day.
In particular, I’d like to thank consultant Don Malecki for his thoughtful comments, Joel Volker of ACORD and
the staff at Westport Ins. Co. for their critiques, and Jack Gibson and the folks at the International Risk
Management Institute (IRMI) for allowing us to address some issues raised in their Construction Risk Insurance
Specialist (CRIS) designation program.
I’d also like to thank three of our state associations for their contributions to this program. First, a wink and a nod
to the Independent Insurance Agents of North Carolina for allowing us to use the clever subtitle of this
program which was coined by incarcerated staff member Stuart Powell for a similar seminar presented to their
member agencies. Second, thanks to the Florida Association of Insurance Agents for sharing information from
their certificates seminar. Third, special thanks the Independent Insurance Agents of Texas for allowing us to
make extensive use of their outstanding “Best Practices for Certificates of Insurance” white paper…answers to
questions as to the appropriate procedures for dealing with many of the issues raised in this program may be
found in this comprehensive, practical document available in the VU Certificates of Insurance Resources section..
In March 2008, after our national board of state directors adopted a position paper on certificates of insurance, we
began to offer the white paper and related documents and articles for free to the general public. To access our
Certificates of Insurance Resources section of the public area of our Virtual University web site, go to:
http://www.iiaba.net/VU/NonMember/Certificates.htm
Finally, throughout this presentation and in the Appendix of this handout, you will find web links to information
on our web site as well as others. Most of these links take you to the public area of our web site or other public
web sites. However, because the vast majority of our Virtual University content is proprietary, some of these links
require a login and are accessible only to IIABA members and paid VU subscribers. If you are interested in Big
“I” membership or a VU subscription, go to:
http://www.iiaba.net/VU/NonMember/subscription.htm
If you are already employed by a member agency but do not know your user name and password, send an email to
[email protected] with your name, agency name, and contact information.
Bill Wilson, CPCU, ARM, AIM, AAM
Assoc. VP, Education & Research
Director, Big “I” Virtual University
April 2008
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Preface
This program was developed as part of a comprehensive education and public relations initiative that has evolved
from our original January 2007 white paper “Certificates of Insurance: Issues and Answers” and the position
statement adopted by our board of state national directors in the fall of 2007. This initiative begins with carrying
the message of certificates of insurance issues to our member agencies.
The initiative continues by encouraging member agents to take this message to insureds and noninsurance
industry groups. To accomplish this, we have developed a program entitled, “Certificates of Insurance: Rolling
Stone Syndrome…Or You Can’t Always Get What You Want” (see Appendix).
This program consists of an article that agents can use as a handout following a presentation or submit to
publications of local homebuilder, lender, transportation, or other associations and government entities. Also
included is a PowerPoint presentation based on the article that can be presented to noninsurance industry groups
as a 20-30 minute format at luncheons or other events. This information can be downloaded here:
http://www.iiaba.net/VU/NonMember/Certificates.htm
We encourage all of our member agencies to assist in this educational and public relations effort. If you need
additional information, check with the VU Certificates of Insurance Resources section at
www.independentagent.com/VU. If you have any questions, contact your state association office or the VU “Ask
an Expert” service. If you do not know your VU login, send an email to [email protected] with your name, agency
name, and contact information.
Once again, I’d like to recognize the Construction Risk and Insurance Specialist (CRIS) designation program of
the International Risk Management Institute and IRMI’s permission for us to use a tiny part of their “Contractual
Risk Transfer in Construction” course. If you find this program to be of value and would like to gain
considerably more expertise in the construction industry, we highly recommend IRMI’s CRIS program which is
being offered by many of our state associations around the country in a seminar format and elsewhere as an online
program. For more information about CRIS, go to:
http://www.CRIS-CE.com
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Table of Contents
INTRODUCTION
•
•
•
•
7
What is a Certificate of Insurance?
E&O Statistics and Case Studies
Scope of the Problem
Solutions to the Problem
CONTRACTUAL INSURANCE REQUIREMENTS AND ADDITIONAL INSUREDS
11
•
•
•
•
Indemnity (Hold Harmless) Agreements
Agent "Opinion" Letters
Reviewing Contracts for Insureds
Common Contractual Requirements and Issues
▪ Primary and noncontributory
▪ Waivers of subrogation
▪ Notice of cancellation
▪ Certificate vs. policy limits
• Sample Contract Provisions
▪ Construction contracts
▪ Commercial lease agreements
▪ Commercial loan agreements
• Contractual Liability vs. Additional Insured Status
• Additional Insured Issues
▪ ISO CGL endorsements
▪ Non-ISO CGL endorsements
▪ Business auto endorsements
▪ Workers compensation and employers liability
▪ Additional insureds vs. OCP coverage
POLICY PROCESSING FORMS AND ISSUES
33
• ACORD Forms
▪ History of certificates
▪ General information
▪ ACORD 24 – Certificate of Property Insurance
▪ ACORD 25 – Certificate of Liability Insurance
▪ ACORD 27 – Evidence of Property Insurance and
▪ ACORD 28 – Evidence of Commercial Property Insurance
▪ Evidences of insurance and lenders
• Copyright Issues
• Non-ACORD Forms, Agency/Company Agreements, and E&S Markets
• Agency Certificate Procedures
• Sending Certificates to Insurers
• Charging Fees for Certificates
CERTIFICATE STATUTES, REGULATIONS AND DOI DIRECTIVES
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•
•
•
40
NAIC Model Fraud Law
Unfair Trade Practices Laws
Model DOI Bulletin
Certificate-Specific Statutes, Regulations and DOI Directives
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CERTIFICATE CASE LAW
• Cases Where the Agent Wins
• Cases Where the Certificate Holder Wins
• How the Certificate Holder Wins
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▪
▪
▪
▪
41
Fraudulent certificates
Ostensible agency authority
Deceptive, incomplete or misrepresentative certificates
Certificates lacking disclaimer language
Non-ACORD forms
CERTIFICATES OF INSURANCE Q&A
42
CONCLUSIONS AND RECOMMENDATIONS
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APPENDIX
46
•
•
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6
Certificate Checklist
IIABA Position Statement on Certificates of Insurance
Additional Reading and Resources in the Big “I” Virtual University
Other Additional Reading and Resources
How To Access the Big “I” Virtual University
How To Subscribe to the FREE VUpoint Newsletter
Agent Certificates of Insurance Article/Presentation
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Copyright © 2006-2009 Independent Insurance Agents & Brokers of America
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Introduction
What is a Certificate of Insurance?
“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. The most common type of certificate is that
provided for informational purposes to advise a third party of the existence and amount of insurance issued to the
named insured.” – Allan D. Windt, Insurance Claims and Disputes, 4th ed., 2001
“A document acknowledging that an insurance policy has been written, and setting forth in general terms what
the policy covers.” – Black’s Law Dictionary
Certificates are simply snapshots of basic policy coverages and limits at the time of issuance of the certificate.
Certificates are for informational purposes only and are not intended to modify coverages or change the
terms of the insurance contract.
Certificates are also not contracts…at least courts have generally held that to be the case as long as the
appropriate disclaimer language is used and there is no consideration provided by the certificate holder.
Certificates do not extend any contractual rights to the holder not provided for in the policy(ies).
This is confirmed by several disclaimers in the ACORD 25 Certificate of Liability Insurance:
1. “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.”
2. “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.”
3. “The Certificate of Insurance on the reverse side of this form does not constitute a contract between the
issuing insurer(s), authorized representative or producer, and the certificate holder, nor does it
affirmatively or negatively amend, extend or alter the coverage afforded by the policies listed thereon.”
IMPORTANT CAVEAT: THIS DISCLAIMER LANGUAGE SHOULD NEVER BE REMOVED FROM A
CERTIFICATE AND, IN FACT, SOME STATES PROHIBIT SUCH MODIFICATION OR IT MIGHT BE
DEEMED A COPYRIGHT VIOLATION.
These informational certificates are usually issued in conjunction with a contractual relationship between a third
party and the named insured, requiring that the named insured have a particular amount and type of insurance and
often that the other party be named as an additional insured under the policy(ies). Such requirements are
particularly common in construction contracts with large contractors, government entities, and major
corporations, but also occur in many business contracts, including commercial leases and loan agreements.
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E&O Statistics and Case Studies
We all know that, by and large, certificates are not contracts. So, there’s no need to be overly concerned about the
accuracy and wording on the certificate, right? Not according to E&O statistics. During the past year of data
collection, E&O claims involving certificates of insurance have increased 28%.
•
About 1 in 25 E&O claims involves a certificate of insurance (double that in some states).
•
Over half of all claims arise from an error or omission by a CSR.
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About 75% of E claims involve a CGL policy, followed by workers compensation at 10%.
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The two main sources of certificate E&O claims are:
1. Failure to add, or improperly identifying, additional insureds (36%), and
2. Misrepresenting coverage on the certificate that doesn’t actually exist (21%).
•
CSRs are primarily accused of being responsible for the former and producers for the latter.
Why?
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Example: Contractor on a Government Project
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Does your agency have written certificates procedures, are all employees required to follow them, and is
compliance monitored?
Case Study #1: Settlement vs. Trial
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Result: $______________ paid claim and $____________ paid claim expenses.
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Case Study #2: Certificate Holders and Additional Insureds
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Result: $______________ paid claim and $____________ paid claim expenses.
Case Study #3: Doing Favors for (Former) Customers
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Result: $__________________ paid claim and $______________ paid claim expenses.
Scope of the Problem
There seem to be three major problems that arise most often regarding certificates of insurance:
1. _____________________________________________________________________________________
2. _____________________________________________________________________________________
3. _____________________________________________________________________________________
Fraud and Misrepresentation
Certificate fraud is an issue addressed largely by contract law, regulatory governance, and specific statutes in
some states. Certificate fraud is not limited to unscrupulous agents and, in fact, may be undertaken by insureds
themselves. Two examples:
1. _____________________________________________________________________________________
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2. _____________________________________________________________________________________
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Onerous Insurance Requirements
From the standpoint of many businesses and governmental entities, it doesn’t hurt to ask for the moon, even if you
know you won’t get it. They ask because they have the leverage to do so and it’s in their best interest.
According to IRMI’s “Contractual Risk Transfer in Construction” course (www.CRIS-CE.com), there are
three parameters of contractual risk transfer at contract negotiation time:
•
Wish List – the contract drafter’s preferred conditions.
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Fallback Position – not ideal, but acceptable.
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Deal Breaker – unacceptable degree of risk.
Unfortunately, some agents will indicate, usually by a certificate of insurance, that their insured is in compliance
with specific insurance requirements when they’re not.
Often organizations will ask for coverages out of ignorance. Contracts may specify additional insured
endorsements that are dated over 20 years ago. If a company (or ISO) has filed a new endorsement and withdrawn
an older one, the carrier usually cannot legally provide the older form without refiling it. However, some agents
indicate on the certificate of insurance that the form or its equivalent is being provided.
Cancellation Notice
One other issue is the “will endeavor to” cancellation wording that very few insurers follow. This has the potential
to become a legal problem in some states, though many consider it one of ethics regardless...is it ethical to provide
a certificate that says the insurer will attempt/try (i.e., “endeavor”) to provide cancellation notice when it's clear
that the insurer has no intention of doing so?
These and many other issues are addressed in this program.
Solutions to the Problems
The solution to the problems outlined in this program is threefold:
1. _____________________________________________________________________________________
2. _____________________________________________________________________________________
3. _____________________________________________________________________________________
This program, the included agent presentation package, and related white papers and articles available on the Big
“I” Virtual University and elsewhere should provide the ammunition needed to accomplish these goals.
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Contractual Insurance Requirements and Additional Insureds
Indemnity (Hold Harmless) Agreements
An indemnity, or hold harmless, agreement is a contract provision where one party (the indemnitor, or
downstream party) agrees to indemnify the other party (indemnitee, or upstream party) for liabilities arising out of
the execution of the contract.
Here’s an example that demonstrates that hold harmless agreements are not harmless and, in fact, may be
hazardous to your E&O health:
To the fullest extent permitted by law, ABC Little Corporation, Inc. (hereafter referred to as “ABC”)
agrees to defend, indemnify and save harmless XYZ Big Corporation, Inc. (hereafter referred to as
“XYZ”) and Owner, as well as any other parties, which XYZ is required under the Contract Documents
to defend, indemnify and hold harmless, and their agents, servants and employees, from and against
any claim, cost, expense or liability (including attorneys' fees), attributable to bodily injury, sickness,
disease, or death, or to damage to or destruction of property (including loss of use thereof), caused by,
arising out of, resulting from, or occurring in connection with the performance of the work by ABC, its
subcontractors and suppliers, or their agents, servants, or employees, whether or not caused in part
by the active or passive negligence or other fault of a party caused by the sole negligence of a party
indemnified hereunder. ABC's obligation hereunder shall not be limited by the provisions of any
worker's compensation or similar act. ABC hereby agrees that One Hundred Dollars and No/Cents
($100.00) of the Price constitutes the separate consideration for ABC indemnity hereunder. Such amount
shall be deemed paid out of the first invoice for payment paid hereunder.
Another example upheld by a court:
Contractor agrees to protect, defend, indemnify, and save operator, its officers, directors, employees, and
joint owners harmless from and against all claims, demands, and causes of action of every kind and
character, without limit and without regard to the cause or causes thereof or the negligence of any
party or parties, arising in connection herewith in favor of Contractor's employees or Contractor’s
subcontractors or their employees, or Contractor's invitees, on account of bodily injury, death or damage
to property.
One more:
Owner will exercise no control or right of control over the employees or details of the work. Contractor is
to furnish his own tools and Owner is interested only in the final results of the completed contract.
Contractor is doing the work under contract and is an independent contractor and not an employee of the
company. By signing the below statement, the seller agrees to protect, defend, indemnify, and save
harmless Owner against loss, damage, or expense by reason of any suits, claims, demands, or judgment
and causes of action caused by the seller, its employees, agents or any subcontractor arising out of or in
consequence of the performance of this contract. It is the intention of the Seller and/or Contractor to
indemnify Owner even in the event that any such claims, demands, actions or liability arises in whole or
in part from warranties, express or implied, defects in materials, workmanship or design, condition
of property or its premises and/or negligence of Owner or any other fault claims as a basis of liability
for Owner.
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The above contract provisions may appear outrageous in their “broadness,” but they are very common and often
cannot be addressed by insurance policies. It is important that this is communicated to insureds.
According to IRMI’s “Contractual Risk Transfer in Construction” course (www.CRIS-CE.com), there are
three categories of indemnification:
1. Broad Form – the indemnitor assumes liability for his own negligence and the indemnitee’s contributory
and sole negligence. Almost 90% of states prohibit or limit the transfer of liability for one’s own
negligence in construction contracts. Where permissible by law, broad form contracts may request
additional insured status under a pre-2004 ISO form.
2. Intermediate Form – the indemnitor assumes liability for his own negligence and the indemnitee’s
contributory negligence. Increasingly, this is the more common type of contract and one for which the
2004 (or later) ISO forms are suited.
3. Limited Form – the indemnitor assumes liability only for his own negligence. Few contract initiators
would ask for such limited indemnity that effectively comprises simple tort negligence.
The IRMI course includes a chart showing which states permit transfer of sole negligence, joint negligence, or
comparative negligence, and under what conditions.
IRMI also points out that construction contracts often use antiquated terms such as “Comprehensive General
Liability Insurance,” “Manufacturers and Contractors (M&C) Liability Insurance,” “Owners, Landlords, and
Tenants (OL&T) Insurance,” “Broad Form Comprehensive General Liability Endorsement” (all in lieu of the
current and correct “Commercial General Liability Insurance”, “additional named insured,” “coinsured,” “crossliability endorsement” (included in the current CGL Separation of Insureds clause), “combined single limit” (as
opposed to per-occurrence, aggregate, and products-completed operations aggregate limits), and many others.
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Agent “Opinion” Letters
Certificate holders sometimes require the insured to ask the insured’s agent for a letter attesting to the fact that “in
the opinion of the agent, the policy contains the required insurance coverages/indemnifications required by the
contract with the insured.” (The words in quotation marks are excerpted from an actual letter received by an
agent on behalf of his insured.)
In this instance, the certificate holder is demanding that the insured’s agent warrant coverage to their benefit
without exclusions, something that is impossible to do. Here are two other examples of certificate holders
mandating that an agent warrant coverage on behalf of his or her client:
“The certificate of insurance should also indicate in the comments section that the insurance that has been
obtained for the additional insured complies with the insurance requirements section of the lease or
contract.”
“Certificate must certify that Subcontractor will maintain completed operations coverage for the lesser of
eight (8) years or the prescribed time of the state’s statute of repose.”
As discussed later, the ACORD Forms Instruction Guide suggests that this NOT be done with a certificate of
insurance and we recommend it not be done with an “opinion” letter.
Needless to say, agents are sometimes asked to produce a certificate that cannot comply with the contract the
insured has signed. Refusing to do so, agents are often faced with an assertion by the certificate holder that:
1. The agent’s insured will be prohibited from performing work until an acceptable certificate is provided;
2. Payment to the agent’s insured for work performed will be withheld until the certificate complies with the
contract;
3. The insured will be held in default under the contract with various penalties applying; and/or
4. The certificate holder knows of agents who can or will provide such certificates.
Obviously, failure to cave into these demands could mean the loss of an account for the agency. A client’s
contractual obligations can present several other problems for agents:
1. _____________________________________________________________________________________
2. _____________________________________________________________________________________
3. _____________________________________________________________________________________
4. _____________________________________________________________________________________
5. _____________________________________________________________________________________
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Reviewing Contracts for Insureds
Business contracts can be very complicated. Construction contracts, in particular, can be huge and complex.
When these agreements are reviewed by individuals who do not have the experience or qualifications to do so, it
increases the likelihood of errors and thus exposure to liability. Contract language examples will be provided
later.
The following is a short article on this subject written by VU faculty member Mike Edwards of Edwards &
Associates, reprinted with his permission:
“Reading Contracts for Insureds – Guidelines and Sample Disclaimer”
As every E&O attorney knows, there are a sizeable number of E&O claims against agents that arise out of
the agent trying to do a favor for an insured. That “favor” often involves reading or reviewing contracts
signed by the contractor. Of course, other insureds sign contracts, such as lessors, lessees and others.
Agents are caught in a Catch-22 when it comes to reviewing contracts signed by their insureds. To run
from the task would call into question the agent’s professional service. On the other hand, to tackle the
project with no written guidelines or disclaimers could be disastrous for the agent and agency. The most
common sense approach, and one that is recommended by many E&O attorneys, is the middle ground:
review the contracts, but with ample caveats. Of primary importance is to state in writing that the agent is
only reviewing the insurance requirements of the contract, and is not providing any sort of legal advice.
In addition, such a disclaimer should be provided at least annually to insureds for which the agent
frequently and routinely reviews contracts. For situations where a contract review is done only
infrequently, it is recommended that the disclaimer be provided to the insured each time. Those who favor
a conservative approach recommend using the written disclaimer each time a contract is reviewed, no
matter how many contracts are reviewed for an insured each year.
Below is a sample disclaimer letter for use when reviewing contracts for insureds. This disclaimer is
provided solely for illustrative purposes, and any disclaimer actually used by an agency should be
reviewed with the agency’s legal counsel prior to actual use with an insured.
Our Agency has, upon your request, reviewed the contract indicated above. Specifically, we
reviewed only the insurance requirements contained in Section __, Page ___.
The scope of our review was to determine if the current insurance program which you have
placed through our Agency addresses the types and amounts of insurance coverage referenced by
the contract. We have identified the significant insurance obligations, and have attached a
summary of the changes required in your current insurance program to meet the requirements of
the contract. Upon your authorization, we will make the necessary 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.
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Common Contractual Requirements and Issues
In this section, we’ll examine three of the most common contractual requirements: (1) primary and
noncontributory coverage, (2) waivers of subrogation, and (3) notice of policy cancellation. Later we’ll examine
more specific contractual provisions found in many lease, loan and construction agreements.
“Primary and Noncontributory”
Many, if not most, contracts require that (sub)contractors or other parties provide coverage for the benefit of the
indemnitee (for example, as an additional insured under a CGL policy) that is “primary and noncontributory.”
Some parties will request this language on policies other than the CGL. Certificates with this language are issued
daily by agents attesting that the referenced CGL (or other policies) meet(s) these requirements. However, is this
really true?
Primary. Here’s what the ISO 2007 CGL policy says:
4. Other Insurance
If other valid and collectible insurance is available to the insured for a loss we cover under Coverages
A or B of this Coverage Part, our obligations are limited as follows:
a. Primary Insurance
This insurance is primary except when b. below applies. If this insurance is primary, our
obligations are not affected unless any of the other insurance is also primary. Then, we will share
with all that other insurance by the method described in c. below.
b. Excess Insurance
This insurance is excess over:
(2) Any other primary insurance available to you covering liability for damages arising out of the
premises or operations, or the products and completed operations, for which you have been added
as an additional insured by attachment of an endorsement.
Non-CGL Policies. Again, under current versions of the ISO CGL, primacy isn't a major issue, but it can be
under non-ISO or even non-CGL forms. For example, the 2006 ISO Business Auto Policy is primary only if the
named insured owns the vehicle or assumes liability under contract (Condition 5, Other Insurance, subparagraph
c.); otherwise the coverage is excess. As for “noncontributory,” the ISO BAP only mentions primary or excess…it
says nothing about being pro rata or applying in contribution with other forms.
Noncontributory. However, does the ISO CGL policy respond on a "noncontributory" basis? The answer to that
question depends on what the author of the contract meant by "noncontributory."
If "noncontributory" means that the coverage is intended to be excess only, then the ISO CGL and additional
insured endorsements pretty much take care of that, as pointed out above (excess policies may be problematic).
For example, the following real-life contractual insurance requirement implies that “noncontributory” and
“excess” are synonymous:
“The General Liability endorsement shall be at least as broad as Form CG 2010 11-85 edition. Each
policy shall stipulate that the insurance afforded to the additional insureds shall apply as primary
insurance and the any other insurance carried by the Contractor, the Owner, or the Lender, if any, or their
directors, offices or employees will be excess only and will not contribute to the primary insurance.”
[emphasis added]
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In other words, “noncontributory,” as an accepted and commonly used term in the construction industry means
that the indemnitor’s insurer (the one providing the AI coverage to an indemnitee) will not seek contribution for
any other insurer (or at least any insurer of the AI).
On the other hand, if it means that the insurance won't contribute, even on an excess basis, then you have a
problem since the insured has contractually agreed that his or her CGL will be the sole source of recovery.
In addition, the construction contract must be read carefully to determine if the “primary and noncontributory”
requirement applies just to the CGL policy to which the AI endorsement is attached or also to excess liability
policies or even non-general liability coverages like commercial auto.
Some carriers use proprietary endorsements that define the term “noncontributory.” For example, one insurer’s
“Amendment of Primary and Excess Provisions (Additional Insureds)” modifies the CGL Other Insurance clause,
including the addition of a definition:
“Non-contributory” means that the other insurance available to the additional insured will apply as
excess and will not contribute as primary to the insurance provided by this endorsement.
Insurers sometimes will add a certificate holder as a CGL additional insured on a primary basis, but not on a
noncontributory basis. As pointed out earlier with regard to business auto coverage, primary and excess are
usually governed by vehicle ownership, so it’s impossible to say unequivocally that coverage is even primary.
As a general E&O rule, when language like this appears in a contract, it should never be added to a certificate.
Wording of this type on a certificate of insurance has no force or effect whatsoever other than to create a potential
E&O exposure for the agent/broker if the policy is not endorsed to provide the “certified” coverage. As discussed
later in this program, such modifications of certificate wording may be illegal in some states, inappropriate as
outlined in some agency/company agreements, or otherwise a very bad idea. Anytime a non-ACORD certificate is
requested, the insurer needs to issue the certificate or otherwise authorize it.
Waivers of Subrogation
Contracts will often stipulate that the right of subrogation must be waived. The ACORD 25 includes an important
disclaimer:
“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).”
The CGL only restricts waivers of subrogation after a loss. It does not restrict waiving subrogation before a loss
(written, oral, or implied). Specifically, the policy language in the 2004 CGL says:
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.
In addition, it is generally accepted that insurers cannot subrogate against their own insureds except in rare
instances such as intentional losses. Thus, additional insured status possibly grants some degree of insulation from
subrogation after loss. However, to fully comply with some contractual requirements, it may be necessary to
attach ISO form CG 20 04 10 94 – Waiver of Transfer of Rights of Recovery Against Others To Us.
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If a contract requires a full waiver of subrogation, it is advisable that the agent not indicate compliance on the
certificate of insurance unless authorized to do so in advance by the insurer based on policy language or state law
(waivers are not legal in about 15% of states). In addition, some state statutes require the attachment of an
endorsement even though the policy grants waivers prior to loss.
For a much more detailed (3,000 words) article on waivers of subrogation, including a discussion of waivers in
property, auto, and workers compensation, check out this article on the Virtual University:
“Waivers of Subrogation”
http://www.iiaba.net/VU/Lib/Ins/CL/CGL/WilsonSubrogationWaivers.htm
Notice of Cancellation
A certificate holder will often request that notice be provided of cancellation. Typically the request is for 30 days
(or more) notice. For example, here is some wording from a lease agreement:
“All policies of Tenant’s Insurance shall contain endorsements that the insurer(s) shall give Landlord and
its designees at least 30 days notice of any cancellation, termination, material change, or lapse of
insurance.”
As a practical matter, most additional insured endorsements don’t extend a right of notification of cancellation,
much less a right of notification of a “material change.” If cancellation notice is essential, then in lieu of
additional insured status, the party requesting the certificate could ask the insured to obtain an Owners &
Contractors Protective (OCP) policy. However, one insurer offers a “Designated Entity – Earlier Notice of
Cancellation/Nonrenewal Provided by Us” endorsement. This endorsement provides for notice of cancellation,
nonrenewal, or material limitation in coverages for a specified number of days in advance for any statutorily
permitted reason other than nonpayment of premium.
“Endeavor To.” There are other potential grounds for claims or suits against agents involving certificates other
than purely contractual ones. For example, the ACORD certificates of insurance say that the issuing company
“will endeavor to” provide notice of cancellation to the certificate holder:
“Should any of the above described policies be cancelled before the expiration date thereof, the issuing
insurer 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.”
Various dictionary definitions of “endeavor” include:
•
•
•
•
to exert oneself to do or effect something; make an effort; strive.
a strenuous effort; attempt.
a conscientious or concerted effort toward an end; an earnest attempt.
to attempt by employment or expenditure of effort.
Clearly, “endeavor” means at least to try and probably to make a significant effort to do something. In the case of
many or most insurers today, there is no intent to provide any notice of cancellation. Therefore, why should there
by any indication on the certificate of cancellation notice when none is required by the policy nor otherwise
intended by the insurer? It raises the question as to the ethics and professionalism of the party making such a
statement not to mention their potential legal liability.
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Certificate vs. Policy Limits
Consider this very common situation: Your insured contractor has gotten a job where the insurance requirements
include “not less than” $1,000,000 in CGL coverage. He has a $2,000,000 CGL occurrence limit. He doesn't want
them to know that he has this much insurance, so he asks you to issue the certificate showing a $1,000,000 limit,
the minimum required by the contract. So, what do you show on the certificate...$1,000,000 or $2,000,000?
The ACORD 25 Certificate of Liability Insurance simply provides a place for a policy number and the limits
associated with that policy. It does not address what a construction contract might say nor does it address the issue
of “minimum” vs. “actual” limits. The ACORD Forms Instruction Guide says, “Enter limits corresponding to
those found on the policy declarations page.” Therefore, it is clearly the intent of the ACORD certificate to show
the actual policy limits, regardless of what the construction contract calls for.
The construction contract, though, simply asks for proof that the contractor has at least a $1,000,000 limit of
insurance. So, do you comply with the literal reading of the certificate (and ACORD instructions) and show the
actual policy limits, perhaps providing more information that the insured would want the contracting party to
know? Or, do you comply with the perceived spirit of the construction contract by only advising that the insured
has the minimal limits required?
While this may appear to some be a question of ethics or business practices, given that a number of states have
adopted statutes or regulatory guidelines with regard to “fraudulent” certificates, and given the litigious
environment in which we live, care should be taken to accurately reflect the limits of coverage in accordance with
the instructions on the certificate and any other directions provided by the carrier.
We ran this issue, from an ethical and business (i.e., non-legal) perspective, by the VU faculty and our VUpoint
Newsletter readers and they were split exactly 50/50 on what the proper course of action should be. IIABA
members and paid VU subscribers can read the article and review the survey responses here:
“Certificate vs. Policy Limits”
http://www.iiaba.net/VU/Lib/Bus/AM/Procedures/FacultyCertificateLimits.htm
“Surveys & Polls: Certificate vs. Policy Limits”
http://www.iiaba.net/VU/Lounge/YourVUpoint/YourVUpoint0306.htm
One other possible solution to this conundrum is how one carrier’s AI endorsement addresses contractual limits
requirements that are less than the policy limits of the indemnitor:
“We will not provide Limits of Insurance to any additional insured person or organization that exceed the
lower of…The Limits of Insurance you are required to provide in the written contract or written
agreement.”
With this restrictive policy language, one might be able to, in good faith, show limits on the certificate that
correspond with the contractual requirements.
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Sample Contract Provisions
To illustrate the nature of construction contracts and commercial leases, the following are examples of insurance
and certificate provisions found in some contract.
Construction Contracts
While there are standardized construction contracts (e.g., AIA 201 and ConsensusDocs 200), many contracts are
unique or a hodgepodge of various contractual provisions sometimes dating back decades. Here are several
examples of relatively simple construction contract insurance requirements:
•
“…Certificates of Insurance acceptable to Owner shall be filed with the Owner prior to commencement of
the Work. These certificates and the Insurance policies required by this Paragraph shall contain provisions
stating that the Owner shall be named as an Additional Insured thereunder and that the policies shall
apply on a primary basis.”
•
“Please provide the following language appropriately inserted in the insurance certificate block for
Special Provisions as follows: ‘Not withstanding the preprinted cancellation Provisions on this form,
coverages afforded under the policies will not be cancelled, reduced in amount nor will any coverages be
eliminated until at least thirty (30) days after mailing written notice, by certificate mail, return receipt
requested, to the insured and the Owner, of such alteration or cancellation.’”
•
“We require a 30 day cancellation notice for any reason. This requirement can be met by crossing out the
unacceptable wording on the certificate. Please cross out the following wording: ‘endeavor to’ and ‘but
failure to mail such notice shall impose no obligation or liability of any kind upon the company, its agents
or representatives.’”
•
“The general liability policy shall contain the following endorsements or language, which shall be
indicated on the certificate of insurance: The employee and workers compensation related exclusions in
the policy shall not apply with respect to claims related to railroad employees.”
•
“The Worker’s Compensation and Employer’s Liability Policies shall contain Waivers of Subrogation in
favor of Contractor, Owner and any other entity as may be required by the Contract Documents…The
Certificate of Insurance and policies for the Commercial General Liability and Business Automobile
policies shall name Contractor and, if requested, Owner and Owner’s agents, as Additional Insureds.”
•
“…Products-Completed Operations: This coverage must be maintained through the statute of limitations
in the state where the work is being performed. Policies and/or endorsements cannot include any
provisions that terminate products-completed operations coverage at the end of the policy period or limit
this coverage in any other way with respect to the additional insured…These coverages must be primary
and non-contributory.”
Unfortunately, construction contracts can be far more complex and demanding, easily in excess of 200 pages. In
addition, “insurance requirements” or, more accurately, risk transfer requirements, are not always found beneath a
noticeable headline in the contract.
Consider this all-too-common scenario: Your insured is bidding on a construction contract with a large, national
builder. The contract includes an insurance addendum that requires that certain coverages, limits and terms be in
place. Compliance would necessitate adding the builder as an additional insured, restructuring the coverages, and
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even modifying the coverage forms themselves (or implying that the forms have been modified). The builder also
wants major revisions to the certificate(s) of insurance.
Of course, the current carrier refuses to do any of this. What do you do? The insured insists that, without these
concessions, he will not get the job. You know that if you don't assist the insured in complying, you may lose the
account to an agent who is willing and (allegedly) able to meet the builder's demands... sometimes, remarkably,
with the same carrier who refused your request. Before we examine the issues and seek some solutions, let's go
back to the start….
Here's a list of some of the requirements in this construction contract insurance addendum for this builder, along
with some commentary (Note: These are all real contract provisions.):
•
The following additional insured endorsements must be added to the contractor's CGL policy (though it
isn't clear which): CG 20 26 11 85; or CG 20 10 11 85; or CG 20 10 10 93 (but only if modified to delete
the word “ongoing” and insert the sentence “Operations include ongoing and completed operations” to
track the 1985 versions).
o
CG 20 26 11 85 - Additional Insured – Designated Person or Organization says, “WHO IS AN
INSURED (Section II) is amended to include as an insured the person or organization shown in
the Schedule as an insured but only with respect to liability arising out of your operations or
premises owned by or rented to you.”
o
CG 20 10 11 85 - Additional Insured – Owners, Lessees or Contractors – (Form B) says, “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 work' for that
insured by or for you.”
o
CG 20 10 10 93 - Additional Insured – Owners, Lessees or Contractors (Form B) says, “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.”
•
The additional insureds are to include the builder entities (a partnership and corporation), the site owner,
and all of their respective officers, directors, partners, members, and employees.
•
The contract effectively requires that the contractor’s CGL policy continue in force to cover the additional
insureds for BI and PD that occurs after all work on the site has been completed. There is no specific
termination date and, at the builder's request, the contractor must provide certified copies of all
subsequent policies for at least five (5) years.
•
The contract requires thirty (30) days notice by certified mail for cancellation, nonrenewal, and
modification or reduction in coverage. It also mandates that the certificate of insurance be revised to
delete the wording “endeavor to” and “but failure to mail such notice shall impose no obligation or
liability of any kind upon the company, its agents or representatives” from the cancellation portion of the
certificate. The contract, to the fullest extent permitted by law, also calls for the deletion of anything in
the certificate of insurance that would imply that it does not confer rights to the insurance.
•
The contract clarifies that coverage is not limited to vicarious liability and it prohibits any endorsement
limiting coverage for ANY negligent acts, errors or omissions of the builder.
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•
The contract forbids exclusionary language for things such as soil subsidence, earth movement, pollution,
mold or fungus, EIFS, etc.
•
If insurable by law, the policy must cover punitive damages, fines or penalties.
•
The contractor must require (and provide proof of upon request) each subcontractor to comply with the
insurance requirements of the contract and the sub must sign a hold harmless/indemnity agreement
specified by the contract, naming the builder, owner, officers, etc. (not the contractor) as beneficiaries. A
complete subrogation waiver is also required. Unless prohibited by the policy or law, the contract requires
an assignment of the policy to additional insureds if the contractor is out of business or cannot be located.
The contract makes the contractor's policy primary, which isn't unusual for additional insureds.
This agreement is a good example of a risk manager and/or attorney gone amok (not from the builder’s
perspective, of course). The attempt here is to essentially remove all potentially insurable risk from the builder
and place it on the shoulders of the contractors and subcontractors who typically have far fewer resources than the
large corporations making these demands.
The builder can, or can at least try to do this because of size and market clout. By passing along significant costs
to contractors and the insurance industry, they keep their costs lower and make themselves even more competitive
relative to other builders who don't require such onerous contracts.
Commercial Lease Agreements
Here is a sample of a very simple commercial building lease insurance requirement:
“Insurance required hereunder shall be in companies rated A+ or better in “Best’s Insurance Guide” and
shall be qualified to do business in the state in which the premises are located. The Tenant shall deliver
to the Landlord copies of policies or certificates evidencing the existence and amounts of such
insurance with loss payable clauses satisfactory to Landlord. No such policy shall be cancelable or
subject to the reduction of coverage or other modification except after ten (10) days prior written notice
to Landlord.”
Another example:
Insurance. Lessee, at his expense, shall maintain plate glass and public liability insurance including
bodily injury and property damage insuring Lessee and Lessor with minimum coverage as follows:
Lessee shall provide Lessor with a Certificate of Insurance showing Lessor as additional insured. The
Certificate shall provide for a ten-day written notice to Lessor in the event of cancellation or material
change of coverage. To the maximum extent permitted by insurance policies which may be owned by
Lessor or Lessee, Lessee and Lessor, for the benefit of each other, waive any and all rights of
subrogation which might otherwise exist.
Too often, agents will examine a lease for a tenant insured and begin and end with the insurance requirements.
However, as a matter of liability and indemnity, there may be several other provisions in a commercial lease that
require addressing, including “Damage and Destruction” clauses. It’s therefore important that leases be reviewed
in their entirety, preferably by the tenant’s counsel who can then advise the agent of the insurance requirements.
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The importance of a thorough review is reflected by the potential size of claims against tenants. VU faculty
member, Jim Mahurin (www.risk-guide.com) has reviewed hundreds of commercial leases and provides several
large claim examples, followed by a short list of insurance requirements he’s seen that are often overlooked or
improperly responded to by agents:
“A law firm employee left a mop sink running over a three day weekend and flooded seven floors of an
18 story office building. The law firm occupied four of the floors and others were occupied by a
bank. There was no waiver of subrogation.
“A plain vanilla retail tenant in 1,000 square feet of mall space is typically on the hook for $250,000 in
uninsured interior improvements, i.e., improvements installed by a prior tenant but obligated for repair
under the Damage & Destruction clause, plus no waiver of subrogation. It is not uncommon to find a
small business tenant in a mall setting exposed for $500,000 or more.
“Agents often have several insured customers in the same mall. The business owners know one another. I
have seen strip malls where all of the tenants, except the bar and lounge, were insured by the same agent
from one of the low cost commercial package providers that typically employ captive agents whose
expertise, if any, is in personal lines. Every tenant was underinsured by six figures.
“Owners too often base their insurance value on the cost of bare wall, bare floor, and unfinished ceiling
construction. They are uninsured for millions in the form of interior finishing installed by prior
tenants and don't know it. In the event of a loss, you have a desperate landlord out to recover any way
they can. You can bet the ranch they will come after the agent.”
Here is the short list of sample commercial lease insurance requirements:
1. Tenant to insure fire and extended coverage, including vandalism and malicious mischief. NOTE; The
waiver of subrogation is limited to insured losses. This leaves the tenant open for recovery by the landlord
for other peril (notably water damage) losses.
2. Coverage to include peril of earth movement...
3. Coverage to include perils of earthquake and earth movement...
4. Coverage to include peril of subsidence...
5. Coverage to include flood and water damage...(included in requirement for business interruption)
6. Tenant to insure...the full insurable value...
7. Tenant to insure...the full market value...
8. Tenant to insure...the full replacement cost...
9. Tenant to insure the Actual Cash Value of the building for the full replacement thereof...
10. Tenant to insure the Actual Cash Value of replacement...
11. The obligation of the Landlord is limited to the building shell. Tenant at Tenant's expense shall promptly
perform all repairs and restoration not required to be done by Landlord and shall promptly re-enter the
demised premises and commence doing business in accordance with the provisions of this lease.
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NOTE: Building shell is defined to mean the exterior walls without finishing on the building interior, and
unfinished floor, and unfinished ceiling, and all utilities stubbed to an outer wall.
12. Tenant shall make...all non-structural ordinary and extraordinary, foreseen and unforeseen repairs and
replacements to the demised premises, including, without limitation, repairs and replacements to the
plumbing and sewage facilities within the demised premises or under the floor slab including free flow up
to the main sewer line, electrical, heating, ventilating and air conditioning systems and escalators and
elevators, if any, and mechanical systems and installations therein..
13. Tenant, at Tenant's sole cost and expense,, shall maintain all-risk insurance, with deductibles in an
amount reasonably satisfactory to Landlord, protecting and indemnifying Tenant against any and all
damage to or loss of any Alterations and lease hold improvements, including any made by Landlord to
prepare the Premises for Tenant's occupancy, and Tenant's Property,. All said policies shall cover the full
replacement value of all Alterations, leasehold improvements and Tenant's Property.
14. Tenant shall...include ground lessor as Additional Insured...
Needless to say, a tenant cannot comply with most of these requirements by relying on the fire damage legal
liability coverage of his or her CGL policy. Even the ISO CP 00 40 Legal Liability coverage form won’t work for
the multitude of leases that make a tenant responsible for damages without regard to negligence or fault. Finally,
beware of triple net leases! For several articles on the VU about triple net leases, go to the VU at
www.iiaba.net/VU and search for “triple net.”
In addition to the above, Jim provided the following suggestions:
An onerous lease is one that doesn't have a mutual waiver of subrogation. There are few of these where
damage to occupied facilities won't bankrupt your insured. CGL and Auto exclude damage to property in
your custody. That is onerous.
Make sure you reference both CGL and Auto CCC exclusions. Ninety percent of experienced agents don't
grasp the significance.
Loss examples:
a. A tenant's employee hit a support pillar with a vehicle causing collapse of a section of the roof in a
large industrial building. The repair bill was $625,000 (in 1980).
b. A tenant's delivery truck slid into rear wall of a shopping center during an ice storm causing extensive
damage to (a) space occupied by the tenant, and (b) damage to adjoining units. All loss to (b) was paid
under the liability portion while the Lessor's insurance carrier subrogated a six figure repair bill against
the tenant.
One of the things you need to tell your agents is to not send COI's [other than temporary] to landlords on
triple net leases. Send a certified copy of the policy and invite the lessor to read the policy to make sure
the coverage is satisfactory. The insurance requirements are often ambiguous. Since the lessor is often a
named insured, they can pursue recovery from the agent.
Separately, it's a great sales tool. Agents can pick up a lot of business by addressing the lessor interest
well.
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You would be surprised by the percentage of Katrina litigation involving failure of tenants to provide
adequate insurance to protect the lessor. The lessors have sued the tenants and the tenants have sued the
agents. In some, the lessor is pursuing recovery against the agent as a named insured.
One case involves a demand for over $8,000,000. The uninsured damages - at a minimum - are seven
figures. This is truly serious E&O business.
An excellent treatise is the book “Insuring the Lease Exposure” by Harry Brooks and Don Malecki. I believe
the latest edition is 1989, so some of the specifics are undoubtedly dated but the basic concepts haven’t changed
much. The book is available on Amazon.
Commercial Loan Agreements
Insurance requirements in small to mid-sized commercial property loan agreements have changed remarkably in
recent years. An increasing percentage of loan documents impose lengthy requirements as to the terms and
amounts of coverage. It is interesting to see insurance requirements on modest property loan documents today
similar to requirements imposed in debt instruments involving tens of millions of dollars fifteen (15) years ago.
The insurance industry’s shift away from blanket property policies to specific schedules and the introduction of
margin clauses into the “blanket” coverage format create some interesting situations. Again, according to
consultant Jim Mahurin, here are 26 common lender requirements:
1. The first item is little changed. Typical language requires insurance against loss or damage to the Property
by fire, windstorm and extended perils, and against loss or damage by such additional risks included in
“all-risk” or “special form” insurance policies. The “all-risk” or “special” perils requirements are more
recent.
2. Property insurance limits are to be not less than one hundred percent (100%) of the full replacement cost
of the improvements. Please note the phrase “…one hundred percent (100%) of the full replacement
cost…” This language becomes very important in the event of a total loss.
3. Replacement cost is often defined by the Lenders. One example reads, “…the cost of replacing all
improvements without regard to depreciation, less the cost of excavations, foundations and footings
below the lowest basement floor…”
4. The property to be insured is often defined to include improvements installed by the Owner (building
shell) and interior finishing installed by Tenants. Many Owners insure buildings to the extent of original
construction and impose obligations on Tenants to insure the interior finishing. Tenant compliance of
often spotty, at best. This practice frequently results in Owner coverage being deficient by one-third (1/3),
or more, of limits required by the Lender.
5. Many loan agreements stipulate replacement cost is to be determined by an appraisal obtained from a
qualified party. The appraiser’s qualifications may be referenced in the loan document.
6. Many require annual adjustments or inflation guard endorsements to keep the property insurance limits at
the 100% level.
7. Ordinance or Law (O or L) coverage is required if the property is subject to non-conforming use. The
minimum limit under Coverage A is to be equal to the replacement cost. Some stipulate this part is to
equal the replacement cost with an Agreed Amount endorsement. Coverage B is to be sufficient to fully
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fund demolition and disposal. The limit for Coverage C must address the cost of required upgrades.
Determining limits for Coverage B and C are troublesome at best. How much of a building must be
demolished? What is the cost of demolition and clean up? What are the haulage and tipping fees to
dispose of building and personal property debris? These sums are frequently very large.
Coverage C requires special attention because many carrier O or L endorsements do not increase the
building limit. The O or L sub-limit may be adequate for a partial loss but the insured needs coverage for
the replacement cost to rebuild and include the value of all legally required upgrades. Increased costs
arising from code requirements may add fifty percent (50%), or more, to the cost of rebuilding.
8. The growth of LLCs and changing property ownership patterns have resulted in an increased number of
buildings insured as single structures instead of blanket policies. Blanket property programs are less
common and more specific property schedules are issued. “Blanket” property insurance subject to a
Margin Clause creates a separate set of issues. These changes are material to property subject to loans. In
the event of a total loss the Lenders may take the insurance proceeds instead of participating through the
course of reconstruction. The Owner may be left with an unusable lot covered by debris. The Owner’s
share of property insurance recovery may be very small – if any
Property insurance provides Debris Removal coverage in an amount of twenty-five percent (25%) in
addition to the amount of the loss. This provision does not apply if the loss is total. Property policies
provide only nominal sums in addition to the limit applying to the building following a total loss.
Lender insurance requirements seldom address Increased Debris Removal limits. The application of
Lender procedures following a total loss makes this a critical coverage for the Owner. Debris Removal
costs may be fifteen percent (15%), or more, of the replacement cost. If the building is located in confined
space in urban areas the removal cost may be fifty percent (50%) or more. Agents working with property
owners insuring individual buildings, owners insured under specific property schedules, “Blanket”
property policies with Margin Clauses or blanket property accounts written on multiple buildings subject
to one loss should take Increased Debris Removal exposure very seriously.
9. Loan agreements typically require coinsurance penalties to be removed. This requirement is not new.
10. Loans on accounts involved in technology, research & development, intellectual property, software and
similar matters are to address insurance for intangible exposures “…as appropriate…”
11. Loans for property under construction may require coverage for “…one hundred percent (100%) of Soft
Cost…” This is interesting from two perspectives. One, the Lender does not define Soft Cost. Secondly,
insurance company coverage terms for Soft Cost differ. Soft Cost exposure is a significant percentage of
construction hard cost.
12. Construction loans are specific as to requirements for coverage applying to property off site.
13. Addition or improvement to a building during the life of the loan requires the addition of Builders Risk or
Course of Construction insurance reported to the Mortgagee.
14. Flood requirements are often very interesting. Requirements for NFIP coverage on property located in
Special Flood Hazard Areas (SFHA) are usually spelled out but excess coverage is implied. Not only do
you find specific requirements for property located in 100 and 500 year flood zones, some loan
requirements address flood coverage for property in proximity to SFHA zones. This may require
determining elevation differential and linear distance between SFHA and the lowest floor of the facility to
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be insured, the height of an opposing embankments, etc. With over 30% of flood losses in the United
States occurring outside SFHA zones the term in proximity to may require serious analysis.
15. Requirements for earthquake and sinkhole coverage are standard. A few lenders require coverage for
earthquake and breakage of rock beneath the surface of the earth.
16. Business interruption is seldom permitted for less than twelve (12) months. This coverage is to be written
at 100% of the business interruption exposure. Please note the term exposure is not related to coinsurance
percentage. Coinsurance provisions typically aren’t permitted.
17. Some lenders require business interruption for a period to allow demolition and reconstruction of the
facility. Other loans require business interruption for eighteen (18) or twenty-four (24) months. Common
wording is “…during a period of not less than twelve (12) months….” Careful attention should be paid to
time requirements for building demolition, design, permitting, bid letting, repair or reconstruction.
18. Specific requirements for Extended Periods of Indemnity are less common. However, some Lenders refer
to period of interruption to mean resumption of operations at the previous level.
19. Extra expense is rarely addressed in the loan requirements, but long term reconstruction and business
startup periods make this topic an important issue.
20. Some Lenders stipulate business interruption coverage to include monthly payment of principal and
interest. Please note the requirement for principal and the terms of coverage for your insured.
21. Lender’s Loss Payable endorsements are commonly required on business interruption coverage.
22. Coverage for an Increased Period of Restoration may be required in the business interruption program to
address delays caused by code upgrades.
23. Boiler & Machinery coverage may require a Mortgagee clause.
24. Many Lenders require Additional Insured status under Commercial General Liability and Commercial
Automobile policies.
25. Workers’ Compensation and Employers’ Liability is required by many Lenders.
26. The Lenders may participate in negotiating any insurance claims and is authorized to adjust any loss
covered by insurance. The insured may be ordered to provide the Lender with authorization to permit
their participation in negotiating the loss.
Agents should request copies of insurance requirements from loan agreements on property accounts. It is
important for the insured to be in compliance. Property owners appreciate information about these issues. It is an
opportunity to sell additional coverage.
The section was taken from the following VU article:
“Insurance Requirements in Commercial Property Loan Agreements”
http://www.iiaba.net/VU/Lib/Ins/CL/Property/MahurinLoans.htm
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Contractual Liability vs. Additional Insured Status
This issue is discussed because it involves a question that has been submitted to our Virtual University “Ask an
Expert” service several times in the past year and involves a subject often misunderstood. Here is the most recent
inquiry:
"My question has to do with additional insureds. I have had discussions with agents who believe that the
wording in the ISO CGL policy pertaining to an ‘insured contract’ covers the requirement to add
additional insured status to a policy when required in the sub-contract agreement. They attach a copy of
that wording in place of the additional insured endorsement. I feel this is a real stretch. I would look
forward to your thoughts."
Saying that equating contractual liability coverage to additional insured status is a “stretch” is an understatement.
Clearly, these agents do not understand the difference between an indemnitee and an additional insured. Anyone
not providing true additional insured status via endorsement could be opened up to a potentially significant E&O
exposure.
The 2004 CGL “insured contract” definition cited below does not give additional insured status to the non insured
contracting party involved. What it does is create the undefined status of “uninsured indemnitee” for the
individual that is being held harmless by the named insured in the “insured contract,” but has not been added as an
additional insured.
“Insured contract” means:
That part of any other contract or agreement pertaining to your business (including an
indemnification of a municipality in connection with work performed for a municipality) under which you
assume the tort liability of another party to pay for “bodily injury” or “property damage” to a third
person or organization. Tort liability means a liability that would be imposed by law in the absence of
any contract or agreement....
The most obvious problem of relying on this provision rather than actual additional insured status involves
defense costs. All insureds under the CGL have their defense costs outside limits. Most often the “uninsured
indemnitee” has his or her defense costs inside limits. Since the 1996 edition of the CGL, it has stated as much
under Coverage A, exclusion 2.b. Contractual Liability, subparagraph (2):
Solely for the purposes of liability assumed in an “insured contract”, reasonable attorney fees and
necessary litigation expenses incurred by or for a party other than an insured are deemed to be damages
because of “bodily injury” or “property damage”....
However, whether defense costs are outside policy limits is governed by the CGL Supplementary Payments –
Coverages A and B, Item 2. The policy will only provide a defense for an indemnitee for an amount outside
policy limits only if all of the conditions in this section are met. They are summarized by IRMI in their CRIS
“Contractual Risk Transfer in Construction” course (www.CRIS-CE.com) as follows:
a. The insured contractor has specifically agreed in an “insured contract” to assume the liability on which
the suit is based, including the indemnitee’s defense costs.
b. The liability for bodily injury and property damage assumed by the insured in the hold harmless
agreement must be of a kind covered by the policy.
c. The contractor and its indemnitee are both named in the suit.
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d. There is no apparent conflict of interests between the contractor and its indemnitee.
e. The request for a defense is made by both the insured and the indemnitee, and both parties consent to the
assignment of the same counsel to defend both parties.
f.
The indemnitee agrees in writing to cooperate with the insurer in defending the suit (just as the insured
agrees to do in the policy’s basic conditions) and to provide records and documents related to the suit.
The indemnitee must agree to notify any other insurer whose policy may be triggered by this claim
and to cooperate in coordinating such other coverage.
The problem this presents is that it is unlikely that all of these conditions can be met. The second part of Item f.
presents a problem because it conflicts with the typical “primary and noncontributory” provision the indemnitor is
requiring. This latter point demonstrates why agents must be very careful to avoiding “warranting” that coverage
is “primary and noncontributory” in the absence of additional insured status.
If the indemnitee cannot meet all of the above conditions, it must provide its own defense and seek reimbursement
within limits of the costs it has incurred.
For a much more detailed discussion on this subject, check out this VU article:
“Contractual Liability vs. Additional Insured Status”
http://www.iiaba.net/VU/Lib/Ins/CL/CGL/FacultyContractualAI.htm
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Additional Insured Issues
As we just saw, because contractual liability coverage has so many potential limitations, not the least of which is
the typical absence of defense outside limits, it is common to request additional insured status, using contractual
liability coverage, if any, as a fallback.
Another reason, with regard to indemnity agreements, is that many states have anti-indemnity statutes that restrict
the transfer of sole negligence but make an exception for transfer via insurance contract. Only about 20% of states
permit the transfer of sole negligence in a construction contract. Even so, under the 2004 ISO AI endorsements,
all it takes is 1% fault on the part of the named insured to trigger coverage for the additional insured.
ISO CGL Endorsements
The following ISO endorsements are the most common ones found in construction and real estate situations:
CG 20 10 – Additional Insured – Owners, Lessees or Contractors – Scheduled Person or Organization
The current version of this endorsement covers BI, PD, or PI/AI arising from the named insured’s premises and
operations. The CG 20 10 11 85 edition covered both ongoing and completed operations, as well as the sole
negligence of the additional insured if permitted by law.
Completed operations coverage was removed from this form with the CG 20 10 10 93 edition and continued as
such with the CG 20 10 03 97, CG 20 10 10 01, and CG 20 10 07 04 editions. For an article related to this, go to:
“Completed Operations and the CG 20 10”
http://www.iiaba.net/VU/Lib/Ins/CL/CGL/FacultyCG2010.htm
In addition, coverage for the sole negligence of AIs was removed with the 2004 edition. For a discussion of the
2004 changes, review this VU article:
“ISO’s New Additional Insured Endorsements”
http://www.iiaba.net/VU/Lib/Ins/CL/CGL/Wilson2004AIEndorsements.htm
CG 20 33 – Additional Insured – Owners, Lessees or Contractors – Automatic Status When Required in
Construction Agreement With You
This is a blanket additional insured endorsement that ISO introduced in 1997. Coverage is essentially the same as
the CG 20 10. It requires a written contract or agreement in order to trigger coverage. When uncovered claims
(and potentially E&O claims) arise under this form, it is often because the insured has entered into an oral
agreement, so it’s important the insured be aware of this requirement.
This endorsement may be preferable to the CG 20 10 because it saves considerable time and money over issuing
individual certificates and it does not require a specific person/entity be identified. On the other hand, this form
may be inferior in at least a couple of ways. First, as IRMI points out in their CRIS “Contractual Risk Transfer
in Construction” course (www.CRIS-CE.com):
“Unlike CG 20 10, however, the standard blanket endorsement provides not only that no coverage applies
to losses that occur after the work is completed, but that additional insured status ends when the
contractor’s operations for the additional insured are completed. This last statement can be read as
eliminating coverage for a loss that occurs while operations are in progress but that results in a claim
against the additional insured after operations are completed. (At that point, the additional insured is no
longer an insured under the policy and presumably has no standing to submit the claim to the insurer.)
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Second, the endorsement only covers ongoing operations and the CG 20 37 was not designed to work with the CG
20 33. This problem is discussed below.
CG 20 37 – Additional Insured – Owners, Lessees or Contractors – Completed Operations
The endorsement complements the CG 20 10 by providing completed operations coverage and was introduced in
1993 when P/CO coverage was removed from the CG 20 10. The CG 20 37 does not work well with the CG 20
33 because the CG 20 37 requires a schedule of additional insureds and listing of locations and descriptions of
completed operations. Unless an insurer will allow an omnibus insured statement in the schedule of AIs, the form
simply does not work for blanket coverage. Many insurers who offer a proprietary blanket AI endorsement
include both prem/op and completed ops coverages in their form.
Notice of Cancellation. A significant omission to note in all ISO additional insured endorsements is that NONE
of them provide for notice of cancellation. In fact, under ISO Commercial Package Policy not even all named
insureds are entitled to cancellation or nonrenewal notice…only the First Named Insured.
Non-ISO CGL Endorsements
Many insurers, particularly those catering to the construction industry have developed their own proprietary
additional insured endorsements (IRMI says they have over 200 sample forms in their files). In some ways they
may superior to ISO forms. For example, many include both ongoing and completed operations in one form.
In other ways they may be inferior to ISO forms (depending on your definition of “inferior” and on which side of
the indemnification agreement you lie on). For example, one carrier’s AI endorsement says:
“We will not extend any insurance coverage to any additional insured person or organization…That is
any broader coverage than you are required to provide to the additional insured person or organization in
the written contract or written agreement.”
“We will not provide Limits of Insurance to any additional insured person or organization that exceed the
lower of…The Limits of Insurance you are required to provide in the written contract or written
agreement.”
The form also incorporates a professional liability exclusion. ISO forms do not tie coverage or limits to the
contract for additional insureds nor do they include a professional liability exclusion.
Business Auto
ISO’s CA 20 48 – Designated Insured endorsement designates a person or entity listed on the endorsement as an
insured but only to the extent they’re already an insured under the “Who Is An Insured” provision. For an article
on BAP additional insureds, go to:
“The BAP and Additional Insureds”
http://www.iiaba.net/VU/Lib/Ins/CL/AutoGarage/FacultyAIs.htm
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Workers Compensation and Employers Liability
No insurer is going to make a GC an AI on a workers compensation policy because they would be picking up the
GC’s entire payroll exposure for no premium. Some contractors are beginning to ask for Alternate Employer
coverage on the sub’s policy.
Additional Insured vs. OCP Coverage
Like most anything, there are advantages and disadvantages of additional insured status. For a discussion of this,
check out this VU article:
“Additional Insureds vs. Additional Named Insureds”
http://www.iiaba.net/VU/Lib/Ins/CL/CGL/ComiskeyAdditional.htm
Owners and general contractors have at least four ways, short of a wrap-up, of protecting themselves for claims
against them which arise out of an independent contractor’s actions:
1. Require an indemnity agreement (that hopefully has some measure of recovery under the independent
contractor’s CGL policy.
2. Rely on their own CGL policy.
3. Be named as an additional insured under the independent contractor’s CGL.
4. Require the independent contractor to furnish an OCP policy.
Let's take a quick review of each of these options, then focus on the OCP.
Hold Harmless Agreements. While a hold harmless agreement is a good idea, it isn't sufficient by itself unless it
is certain that the contractor has the financial resources (or contractual liability coverage) to pay any and all
claims against the owner for which the contractor is liable.
Owner's CGL. Sole reliance on the owner's own CGL, if the owner is using a significant number of contractors,
may quickly result in a depletion of the aggregate limits, although it does potentially give the owner greater
control over his/her defense.
Additional Insured Status. Complete reliance on coverage as an additional insured under someone else's policy
is rarely a good risk management decision. For another look at additional insured issues, check out this article in
our research library:
“CGL Additional Insureds…A Risky Business”
http://www.iiaba.net/VU/Lib/Ins/CL/CGL/ComiskeyAdditional.htm
While being an additional insured is generally better than NOT being one, it should not be the sole means of risk
transfer. You are at the mercy of the other party to maintain the insurance in force and at adequate limits, and their
aggregate limit could be depleted without the owner's knowledge.
An OCP is one alternative to a per-project aggregate limit endorsement such as the ISO CG 25 03.
OCP Coverage. The Owners and Contractors Protective (OCP) policy is superior in some ways to just naming
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the owner as an additional insured, but inferior in a number of other ways. Given that some of the downsides of
the form are significant, along with the cost, OCPs are not often used in the construction business. The OCP
policy is usually purchased by the contractor, with the owner being the named insured. An advantage to both
parties is that claims covered by the OCP should not reflect on their respective CGL loss experience.
One downside of the OCP (from the contractor's standpoint) is that there is obviously an additional premium
(though often quite affordable) that he/she has to pay to benefit the owner as named insured. The benefit is that
the named insured has a whole new set of limits to draw on...and those limits are PRIMARY over any other
coverage the owner has. The OCP clearly states that it is primary to any other coverage available to the named
insured...that's not necessarily true if they only have additional insured status.
Another downside for the contractor is that he is not an insured under the OCP, so the OCP insurer (from which
the contractor bought the policy) can subrogate against him. Therefore, when purchasing the OCP, the contractor
should make sure the CG 29 88 waiver of subrogation endorsement for the OCP is attached.
The OCP coverage itself is similar to being an additional insured, though coverage under the OCP is not quite as
broad as the CGL, and OCP coverage only applies if the named insured is held vicariously liable for loss arising
out of the acts of the designated contractor.
The OCP does not include products/completed operations coverage...once the work ends, the insurance ends
under an OCP. Also, the OCP doesn't include personal injury coverage, if that's an issue.
As an additional insured, the client would not be entitled to notice of cancellation; as the named insured on an
OCP, they would. That could be of critical importance.
Keep in mind that the above discussion assumes "ISO standard" coverage forms...many insurance companies may
use their own versions of these forms and/or may manuscript them, particularly additional insured endorsements.
Beware of some of these proprietary AI forms, particularly if they include defense within limits.
The above information was excerpted from the following VU article:
“Insuring the Independent Contractor Exposure”
http://www.iiaba.net/VU/Lib/Ins/CL/CGL/FacultyIndContr01.htm
In addition, IRMI’s CRIS “Contractual Risk Transfer in Construction” course (www.CRIS-CE.com) includes
an excellent chart comparing the OCP to additional insured status.
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Policy Processing Forms and Issues
This section focuses primarily on issues involving ACORD forms; however, the importance of taking care when
approached with non-ACORD forms is critical, as is the issue of copyright violations outlined below.
ACORD Forms
In this section, we’ll take a brief look at the history of certificates, then examine more closely the four most
commonly used ACORD certificate and evidence of insurance forms.
History of Certificates
Until 1976, certificates of insurance were either manuscripted or provided as proprietary forms by various
insurers. ACORD (“Association for Cooperative Operations Research and Development”) introduced the first
standardized certificate form in 1976. In 1995, it developed separate certificates for property (ACORD 24) and
liability (ACORD 25) coverages. In addition, ACORD also maintains evidence of property insurance forms for
both personal (ACORD 27) and commercial (ACORD 28) coverages. Until recently, these evidences of insurance
did not contain all of the disclaimers found in the certificates of insurance.
In 2003, ISO introduced its own certificate of commercial liability insurance and continues to maintain and
develop a portfolio of processing forms in addition to its hundreds of advisory policy forms.
While no one seems to know for sure, it is estimated that between 25 and 100 million certificates and evidences of
insurance forms are issued annually.
General Information
All agencies using ACORD forms should subscribe to the ACORD Agency Advantage program which provides
access to all ACORD forms, including “fillable” forms, as well as the ACORD Forms Instruction Guide which
explains how to complete each field in their forms. For more information, go to:
ACORD Advantage Program
http://www.acordadvantage.org
The ACORD Forms Instruction Guide states the following about certificates:
“Agents or brokers should not change any provisions on 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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Agents should not modify ACORD forms for several reasons, including:
1. _____________________________________________________________________________________
2. _____________________________________________________________________________________
3. _____________________________________________________________________________________
4. _____________________________________________________________________________________
The ISO Commercial Package Policy’s Common Policy Conditions (IL 00 17), under Item B. Changes, says,
“This policy’s terms can be amended or waived only by endorsement by us and made a part of the policy.”
Unfortunately, far too often, certificates ARE used in an attempt to effect the terms of business contracts by
implying that policy coverages or conditions exist that actually do not. Below are the ACORD certificate and
evidence forms most often used and some of the issues involved in their use.
ACORD 24 – Certificate of Property Insurance
Key wording:
“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 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.”
“SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE
EXPIRATION DATE THEREOF, THE ISSUING COMPANY WILL ENDEAVOR TO MAIL _____
DAYS WRITTEN NOTICE TO THE CERTIFICATE HOLDER NAMED TO THE LEFT, BUT
FAILURE TO MAIL SUCH NOTICE SHALL IMPOSE NO OBLIGATION OR LIABILITY OF ANY
KIND UPON THE COMPANY, ITS AGENTS OR REPRESENTATIVES.”
ACORD 25 – Certificate of Liability Insurance
The three paragraphs previously excerpted from the ACORD 24 are the same as those in the ACORD 25 except
that the “THIS IS TO CERTIFY THAT” introductory wording of the second paragraph above is missing in the
ACORD 25. In addition, the ACORD 25 provides a second page that contains two provisions not found in the
ACORD 24. The first provision states, in two paragraphs:
“IMPORTANT…If the certificate holder is an ADDITIONAL INSURED, the policy(ies) must be
endorsed. A statement on this certificate does not confer rights to the certificate holder in lieu of such
endorsement(s).
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“If SUBROGATION IS WAIVED, subject to the forms 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).”
“DISCLAIMER…The Certificate of Insurance on the reverse side of this form does not constitute a
contract between the issuing insurer(s), authorized representative or producer, and the certificate holder,
nor does it affirmatively or negatively amend, extend or alter the coverage afforded by the policies listed
thereon.”
According to the ACORD Forms Instruction Guide, “[V]irtually every other state [that does not require the filing
of certificates] 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.”
Finally, at least one other provision on this form presents significant problems for agents and that’s the overly
broad information block titled, “description of operations/locations/vehicles/exclusions added by
endorsement/special provisions.” The ACORD Forms Instruction Guide provides the following explanation:
Description of Operations/Locations/Vehicles/Exclusions Added by Endorsement/Special
Provisions
Record information necessary to identify the operations, locations or vehicles for which the certificate
was issued. Any exclusion endorsement or special policy conditions should also be indicated.
Information about additional insureds should also be shown here. However, if it is necessary to show
several additional insureds for liability coverages (e.g., mortgagees, vendors, landlords, etc.), and there is
not enough room on the form, use the Descriptions box to indicate “see Additional Interest form, ACORD
45, attached” and use ACORD 45 to show the information pertinent to the additional insureds.
ACORD 27 – Evidence of Property Insurance
Prior to July 2006, the ACORD 27 and ACORD 28, unlike the ACORD 24 and ACORD 25, did convey certain
rights to the holder, including notice of cancellation. This changed with the 2006 editions of each evidence of
insurance form, as outlined in the Virtual University newsletter, The VUpoint
(http://www.iiaba.net/VU/Nonmember/Newsletter.htm).
Specifically, the prior edition of the ACORD 27 provided broader coverage and conditions than the new edition.
The form now tracks the ACORD 24, Certificate of Property Insurance form by saying it doesn't change the terms
and conditions of the policy and the “will endeavor to” language with regard to notice of cancellation. The prior
version said the policy was in force and that notice of cancellation WILL be sent.
This lead-in language was in the 1995 edition of the ACORD 27:
“THIS IS EVIDENCE THAT INSURANCE AS IDENTIFIED BELOW HAS BEEN ISSUED, IS IN
FORCE, AND CONVEYS ALL THE RIGHTS AND PRIVILEGES AFFORDED UNDER THE
POLICY.”
The language in the 2006 edition of the ACORD 27 now tracks that in the ACORD 24 and ACORD 25 and reads:
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“THIS EVIDENCE OF PROPERTY INSURANCE IS ISSUED AS A MATTER OF INFORMATION
ONLY AND CONFERS NO RIGHTS UPON THE ADDITIONAL INTEREST NAMED BELOW.
THIS EVIDENCE OF PROPERTY INSURANCE DOES NOT AMEND, EXTEND OR ALTER THE
COVERAGE AFFORDED BY THE POLICIES BELOW.”
The following language is new to the 2006 ACORD 27 form and is virtually identical to that in the ACORD 25:
“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 EVIDENCE OF INSURANCE 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.”
This is the cancellation language of the 1995 ACORD 27 form:
“THE POLICY IS SUBJECT TO THE PREMIUMS, FORMS, AND RULES IN EFFECT FOR EACH
POLICY PERIOD. SHOULD THE POLICY BE TERMINATED, THE COMPANY WILL GIVE THE
ADDITIONAL INTEREST IDENTIFIED BELOW __________ DAYS WRITTEN NOTICE, AND
WILL SEND NOTIFICATION OF ANY CHANGES TO THE POLICY THAT WOULD AFFECT
THAT INTEREST, IN ACCORDANCE WITH THE POLICY PROVISIONS OR AS REQUIRED BY
LAW.”
This is the cancellation language of the 2006 ACORD 27 form which is almost identical to that in the certificates:
“SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE
EXPIRATION DATE THEREOF, THE ISSUING INSURER WILL ENDEAVOR TO MAIL _______
DAYS WRITTEN NOTICE TO THE ADDITIONAL INTEREST NAMED BELOW, BUT FAILURE
TO MAIL SUCH NOTICE SHALL IMPOSE NO OBLIGATION OR LIABILITY OF ANY KIND
UPON THE INSURER, ITS AGENTS OR REPRESENTATIVES.”
ACORD 28 – Evidence of Commercial Property Insurance
For all practical purposes, the 2006 changes in the ACORD 28 mirror those in the ACORD 27. Likewise, the
ACORD 28 can be used as evidence of physical damage coverage for loss payees under a commercial auto loan.
(If the vehicle is leased, the ACORD 23, Leased Auto Certificate of Insurance, can be provided to the owner or
lender rather than the ACORD 28.) The ACORD 28 form is typically used when a third party has a verifiable
insurable interest in the property insured by a commercial property or inland marine policy. These interests range
from commercial real estate mortgages to contractors’ mobile equipment purchases and leases.
Evidences of Insurance and Lenders
On July 28, 2006, the ACORD 27 - Evidence of Property Insurance and ACORD 28 - Evidence of Commercial
Property Insurance were released. Both forms were revised as required by vote of the ACORD Forms Standards
Subcommittee. The forms now track the ACORD 24 - Certificate of Property Insurance form by saying they don't
change the terms and conditions of the policy and the "will endeavor" language with regard to notice of
cancellation is now included.
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Subsequently, several lenders announced that they found the current ACORD 28 (2006/07) form unacceptable
based on the disclaimer changes made to the form in July. Many of these lenders began to require either the
previous ACORD 28 (2003/10) form, an ACORD 75 insurance binder, or a duplicate original insurance policy as
evidence of insurance. As a result, insurance industry representatives and lenders began to meet weekly via
teleconference as part of an ACORD Working Group. For more information, check out this article:
“Certificates of Insurance and Lenders”
http://www.iiaba.net/VU/Lib/Bus/AM/Procedures/WilsonCertificatesLenders.htm
Copyright Issues
All ACORD forms are copyrighted by the ACORD Corporation (Association for Cooperative Operations
Research and Development) and filed with the U.S. Copyright Office. Therefore, anyone using ACORD forms
without permission and/or outside a license agreement with ACORD may be subject to statutory copyright
violations. In fact, under 17 U.S.C. section 504(c), the copyright holder may be able to recover statutory damages,
even without proving other financial loss, in an amount ranging from $200 to $150,000, depending on several
factors, including willfulness.
The ACORD Forms Instruction Guide indicates that some states require that certificates be filed with the state
department of insurance (see “Statutes and Regulations” section of this document). The Guide advises, “In these
states, the text of ACORD’s certificates cannot be modified, unless the modified form is filed for approval by the
respective state Departments of Insurance.”
Even where certificates are not required by law to be filed, according to Joel Volker of ACORD, “ACORD
vigorously pursues copyright violators anytime we are made aware of ‘knockoffs’ or similar violations. This has
been a constant task for at least twenty years.”
While agents are advised not to issue non-ACORD forms without express insurer permission, they should be
especially vigilant about not using certificates that they know represent clear violations of federal copyright law
and agents should not themselves modify copyrighted ACORD certificates by deleting or adding language outside
the obvious informational fields that must be completed.
Non-ACORD Forms, Agency/Company Agreements, and E&S Markets
All non-ACORD forms should be referred to the carrier for at least four reasons:
1. _____________________________________________________________________________________
2. _____________________________________________________________________________________
3. _____________________________________________________________________________________
4. _____________________________________________________________________________________
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While agents have authority to issue ACORD certificates of insurance, the carrier may not have given them
authority to issue other ACORD forms nor any non-ACORD forms. For example, one carrier’s agreement states:
“Your Business Authority and Commission Schedule from XYZ Insurance Company gives you the
authority to issue standard and unaltered ACORD Certificates of Insurance for your business customers.
Only the following forms may be used: ACORD Certificate of Property Insurance (ACORD Form 24)
and ACORD Certificate of Liability Insurance (ACORD Form 25). You do not need to send standard and
unaltered ACORD Forms 24 and 25 to us. You can simply issue the certificate and record the name of the
holder and basic information in your log.”
Increasingly, agents are availing themselves of the E&S marketplace in order to meet contractual guidelines. For
example, some third parties may insist upon additional insured endorsements that are over twenty years old that
“standard” companies can no longer offer. However, these forms may be available from E&S markets.
In most instances, the retail agent may not have authority to issue certificates on behalf of surplus lines carriers. In
fact, many E&S brokers themselves don’t have this authority. In such cases, the agent must request the certificate
from the insurer or surplus lines broker. In at least one state, and possibly others, agents should not sign
certificates of insurance or other documents evidencing coverage by an approved surplus lines insurer unless the
agent holds a surplus lines license.
Agency Certificate Procedures
VU faculty member and agency consultant, Judi Newman, conducted a survey of her clients three years ago. The
following is the question she posed and a sampling of the responses.
“I am looking for some input from you, please. This relates to an operational issue that I am sure many
agencies face. I recently reviewed an agency that issues a fair number of certificates of insurance. In
reviewing the processes I found that about 75% of the requests for certificates included something that
needed the okay of the underwriter or even an endorsement to the policy and, in many cases, these are
money bearing endorsements.
“My questions are two-fold. First, is this true in most agencies? Second, many of the contractors have
contracts or agreements that they send to the agency for an interpretation on what is required on the
certificate of insurance. Do most agencies have the producer review the contract or the CSRs?”
So, what does your agency do? Do you have formal, written certificate procedures? Is there quality control to
ensure compliance?
Based on the authority granted in the agency/company agreement, and incorporating sound E&O principles, it
may be worth considering inclusion of explicit certificate-handling procedures in the agency procedures manual.
These procedures can be communicated to agency staff members, with follow-ups for any changes in forms or
authority.
Note: Many procedural issues are raised by this program. The best source of guidance for agency procedures
with regard to dealing with requests for certificates and evidences of insurance and their processing is the “Best
Practices for Certificates of Insurance” published by the Independent Insurance Agents of Texas and available on
the VU at:
http://www.iiaba.net/VU/NonMember/Certificates.htm
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Sending Certificates to Insurers
An insurer recently sent its agency force a "Good News!" bulletin advising that it was no longer necessary to send
it copies of most certificates of insurance. The bulletin also pointed out that it was the responsibility of the agent
to notify the certificate holder of cancellation. This is a short-sighted approach since certificates can reveal a lot
about an account to an underwriter…the carrier should relish the opportunity to support the underwriting file with
this information. In addition, since the ACORD certificate, where permissible, says that the insurer will “endeavor
to” provide notice of cancellation, how can the insurer “endeavor” to do something it’s not aware of?
So, what should agencies do when told by a carrier not to send copies of certificates? For more information on
this issue, including the citation of a court case where an insurer attempted to sidestep an E&O claim on the basis
that it never got a copy of the certificate, check out these articles:
“Should Agents Send Certificates to Insurers?”
http://www.iiaba.net/VU/NonMember/WilsonInsurerCerts.htm
“Following Up on Certificates of Insurance”
http://www.iiaba.net/VU/NonMember/FacultyCertificates.htm
“Certificates of Insurance: Will You ‘Endeavor To’ Be Ethical?”
http://www.iiaba.net/VU/NonMember/WilsonEndeavor.htm
Charging Fees for Certificates
Our Texas association provides the following fee schedule. Its applicability depends on whether agents can charge
fees in addition to commissions in your state.
For additional information, including several considerations and caveats for using a similar system, be sure to
review the Independent Insurance Agents of Texas’ “Best Practices for Certificates of Insurance” at:
http://www.iiaba.net/VU/NonMember/Certificates.htm
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Certificate Statutes, Regulations and DOI Directives
To address some of the problems outlined in this paper, a number of states have taken legislative or regulatory
action. We have developed a state by state listing of statutes, regulations, or other measures in states that we are
aware of at this time. This is not an exhaustive list of all potentially relevant laws and regulations in states named,
nor should the fact that some states are not named result in a conclusion that they have no potentially relevant
laws or regulations. In addition, this information could change at any time, so it is important that you be informed
of potentially relevant state laws and regulations that may affect the issues discussed in this program.
For our current listing of state statutes, regulations, and regulatory directives, go to:
“Certificates of Insurance Laws and Regulations”
http://www.iiaba.net/VU/NonMember/WilsonCertLawsRegs.htm
This document includes a sample of a model bulletin that a DOI can send to agents, insurers and others, just as
many states have already done, working in conjunction with the state Big “I” association. Specific examples of
such DOI directives are included in the document above.
Also, keep in mind that most states have other statutes and regulations on the books that may not be specific to
certificates of insurance but might be controlling in some of the issues faced by agents. For example most state
Unfair Trade Practices prohibit the issuance of any document that misrepresents the terms of a policy. Other laws
may prohibit agents from altering or waiving a term or condition of an insurance policy orally or in writing.
In addition, the NAIC has a model fraud law that has been adopted by a number of states. Included as a fraudulent
act would be “The issuance of written evidence of insurance” that is false or misleading or similar acts involving
any filed form (policy or certificate/evidence). Increasingly, fraud and similar statutes are being cited by
certificate holders who are unable to recover from agents under certificates of insurance due to a lack of privity of
contract.
Penalties for violations of these laws, regulations or directives often include monetary fines and revocation of
license. In addition, an aggrieved party (not just the insured) in some jurisdictions might be able to pursue a civil
suit and even request punitive damages for knowingly violating laws.
Notes: _____________________________________________________________________________________
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Certificate Case Law
In addition to statutes, regulations, or contractual guidelines, the use of certificates may be governed by court
cases. Such cases exist with regard to contractual obligations, fraudulent certificates, ostensible agency authority,
deceptive, incomplete or misrepresentative certificates, and non-ACORD certificates.
In order to keep up to date on case law involving certificates without reissuing this white paper constantly, we
have created a special supplement to this paper that discusses a number of court cases. To access this information,
go to:
“Certificates of Insurance Court Cases”
http://www.iiaba.net/VU/NonMember/WilsonCertCourtCases.htm
Notes: _____________________________________________________________________________________
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Certificates of Insurance Q&A
The VU “Ask an Expert” question frequently gets questions about certificates of insurance. For the more
common, unique, or important questions, we have created a Q&A section:
“Certificates of Insurance Q&A”
http://www.iiaba.net/VU/NonMember/WilsonCertificateQA.htm
Notes: _____________________________________________________________________________________
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Conclusions & Recommendations
Again, there seem to be three major problems that come up regarding certificates of insurance: (1) certificate
fraud by agents and insureds, including agents who indicate coverages that don't exist so that, for example, an
insured subcontractor can get a construction job or get paid for one, (2) onerous contractual insurance
requirements by large contactors, huge corporations, governmental/public entities, etc. that cannot be met by
coverages typically available in the marketplace, and (3) not providing certificate holders cancellation notice.
The following are steps that you may want to consider taking to help decrease your potential legal exposure.
Provide your client with information/a disclaimer at the beginning of your
business relationship.
Provide a written notice to all new and/or existing clients advising that your agency will only provide current,
accurate information on certificates; will discuss the current status of client’s coverage with the client or client’s
attorney, but will not review and interpret any client contracts; and will remind the client not to promise in a
contract to get or maintain coverage that he does not have, or cannot/will not obtain.
Do not exceed your legal or contractual authority.
All certificates must conform to the state insurance code (statute, regulation, or regulatory directive) for the state
in which the subject of insurance is located. State laws or regulations sometimes require a statement that a
certificate neither affirmatively nor negatively amends, extends nor alters the coverage afforded by the policy.
Also, prior to use, in some states each insurer must file the form of certificate with the state insurance regulator.
In addition, the agency should never exceed its authority to issue certificates or bind coverage in violation of
agency/company agreements and related policies and procedures. This is particularly true if the agent is acting in
the capacity of a broker representing the insured, rather than as an agent of the insurer. The agency’s authority to
issue certificates should be communicated to all agency personnel, such as by inclusion within the agency’s
procedures manuals, via face-to-face education, or by internal communications.
With regard to E&S markets, be wary. In many cases, only the carrier, MGA, or authorized E&S broker can issue
a certificate. In some cases, the retail agent may be granted that authority, but don’t assume it…get such authority
in writing, in advance.
Minimize the review of contracts for insureds and use a disclaimer.
In general, contract reviews should be conducted by the client’s legal counsel. Insureds and prospects also can be
encouraged to have their legal advisers review any contracts entered into by the business. The insured’s counsel
should then present the insurance requirements to the agent for review, procurement, and/or verification via
certificate. The response to such requests can be accompanied by a legal disclaimer drafted by agency counsel.
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Never modify an ACORD certificate.
ACORD forms are copyrighted documents that are typically used by insurers and agents under license
agreements. Other than completing the questions and fields on ACORD forms, the documents cannot be modified
in any way without the express consent of ACORD in advance. In addition, as mentioned above, some states
require the filing of ACORD forms prior to use and forbid the modification of such filed forms without refiling.
Therefore, unauthorized modifications of ACORD forms could be construed as violations of copyright law, and
any changes that are not filed as required could violate statutes and regulations. Such modification may also be
prohibited by the agency/company appointment contract.
Never issue a non-ACORD certificate without insurer approval.
ACORD forms have been extensively tested in the court system, while many non-ACORD forms have not. Such
non-ACORD forms may result in unknown liabilities for the agency. In addition, these forms may have been
drafted in violation of ACORD copyrights. No non-ACORD forms should be issued without express insurer
approval in advance.
Proof-read all certificates and perform periodic QC checks.
Agencies should consider designating one or more individuals to review all certificates before they are released to
insureds or certificate holders. In addition, certificates should be reviewed periodically as part of the agency’s
overall quality control program.
Establish a procedure for handling certificates.
Based on the authority granted in your agency/company agreement, incorporating sound E&O principles, and
taking state law and regulations into consideration, develop specific certificate-handling procedures in your
agency, including for any subsequent changes in forms or authority, and communicate them to staff members.
Follow the “Invariable Practice” rule…one way, all the time, for everyone.
Always send a certificate holder the entire certificate.
Never send only the informational front page of a certificate. Some automated systems permit the omission of the
second page which contains no unique entries, perhaps as a cost-saving measure. The reverse side of the
certificate includes conditional statements and disclaimers that must be included.
Send copies of all issued certificates to the identified carrier(s).
While many insurers prefer not to receive copies of certificates, from an E&O standpoint, agents are encouraged
to provide copies anyway. The ACORD form indicates that the insurer “will endeavor to” provide notice of
cancellation. It is impossible to do so without knowing that the certificate exists.
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Use the correct coverage form to fulfill certificate requests.
Check with the carrier to see what edition dates of forms are being issued in each state to see that coverage
certified is uniform and in compliance with the coverage requirements of the certificate holder, particularly if that
party is a multi-state or national business. Because of filing variances in different states, it is not unusual for there
to be at least two versions of an additional insured endorsement in use by a carrier. Since coverage can be
dramatically different from one form edition to another, more than one endorsement form may be needed and, in
fact, it may be impossible to comply in some states with all contract requirements. In addition, a contract might
specify a specific endorsement or form edition date or its “equivalent.” Agents should use great caution where a
specific form edition is no longer available.
Never certify coverages that do not exist.
Only indicate coverage that exists at the time of issuance of the certificate. Never specify coverage that does not
exist. Make sure the policy is endorsed or modified as required. Only after changes have been made, not simply
ordered, should certificates be issued. Frequently requested certificate alterations include:
•
Adding a lessor as an additional insured to the lessee’s coverage. Adding an entity or project owner as an
additional insured to contractor’s insurance.
•
Making a contractor’s insurance coverage primary and the certificate holder’s coverage “excess” and
“noncontributory.”
•
Having the insurance cover the insured’s contractual obligations to the certificate holder, such as waiving
subrogation rights, hold-harmless and indemnity agreements, and obligations to pay damages and defend.
When your insured is the certificate holder…
Be sure a general contractor’s file includes qualified certificates of insurance and a copy of the written contract
with the subcontractor to fully document insurance, adequacy of limits, and the relationship between the
subcontractor and general contractor. This kind of documentation should help avoid large unexpected additional
premiums upon audit and show that the parties were “adequately insured.” Advise your insured to be wary of
fraudulent certificates…it may be appropriate to verify coverage independently from the certificate.
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Appendix
Note: Under the “Additional Reading and Resources” section, to access the Virtual University articles, you will
need to be an IIABA member or a paid Virtual University subscriber. If you work for an IIABA member agency,
but don’t have or remember your login information, you can obtain it by emailing [email protected]. If you are not
an IIABA member or a paid VU subscriber, but would like information about subscribing to the VU, visit
http://www.iiaba.net/VU/NonMember/subscription.htm.
Certificate Checklist
The checklist on the next page was developed and copyrighted by the Florida Association of Insurance Agents,
and is reprinted with permission of the state association. It may not address all the issues presented by a given
insured, so use it as a guide to assist you and make changes where you or your counsel deem appropriate.
In addition, the Independent Insurance Agents of Texas’ “Best Practices for Certificates of Insurance” white paper
includes an even more detailed checklist in the Appendix of the paper, along with a certificates self-audit
checklist.
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[Agency letterhead or mast heading]
Name of Insured/Job
INSURANCE/CERTIFICATE CHECKLIST
[To the insured:] After counsel has read the construction contract, indicate below what items apply by checking
the appropriate box. Attach a copy of the insurance requirements and counsel analysis and send with this checklist
to our agency before signing the construction contract.
NOTE: Your policy/certificate of insurance may not be amended to include one or more of the items shown
below.
1. Additional Insured Requirements
Yes




No




A.
B.
C.
D.
Include additional insured for general liability
Include completed operations (“your work”) for additional insured
Include additional (designated) insured for automobile
Additional insured’s exact name and address is attached
2. Waiver of Subrogation Requirements
Yes



No



A. General liability
B. Automobile
C. Workers compensation
3. Certificate of Insurance Requirements
Yes



No



A. Delete “endeavor to” and/or “but failure to mail…” from cancellation notice
B. ____ days written cancellation notice required
C. Requires “primary and noncontributory” be shown on certificate
4. Miscellaneous
Yes





No





A.
B.
C.
D.
E.
General liability: Aggregate applies (circle one): project or location
Automobile: Any Auto (Symbol 1) required
Limits greater than $1 million required
Length of time required to maintain proof of insurance is greater than 1 year
Completed by (print): ____________________________________
Date: __________________________________ __________________
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IIABA POLICY STATEMENT
ON
CERTIFICATES OF INSURANCE AND EVIDENCES OF INSURANCE
Adopted by the IIABA Board of Directors on September 29, 2007
Certificates of insurance, evidences of insurance and other documents developed to accomplish the same purpose
(collectively “Certificates”) play a critical role in business transactions to provide information to third parties
about the existence and amount of insurance issued to a named insured. The need for Certificates often arises
from a contract between a named insured and another party which requires that the named insured have and
maintain a particular amount and type of insurance for a specified period of time. Certificates also are sometimes
requested by third parties seeking to confirm some interest in an insurance policy of a named insured.
To fulfill their intended purpose with accuracy and integrity, it is important that Certificates be used
appropriately. However, multiple issues involving Certificates create challenges for agents/brokers, carriers,
insureds, and third parties. These issues include form selection, content, preparation, maintenance and notice, and
misrepresentation and fraud in connection with Certificates. The increasing complexity of transactions for which
Certificates are requested, volume of Certificates requested, and speed required for Certificates issuance
contribute to the difficulty the industry faces in efficiently and effectively meeting the growing demand for
Certificates.
IIABA advocates for constructive dialogue by agents, carriers, and others affected by or influencing these issues
so that the solutions are aligned to the responsibilities of each, and urges all affected insurance industry
participants to take proactive steps to address these issues with pragmatic business practices, as follows:
1. Form Selection
Those preparing Certificates are often subjected to undue pressure from insureds to use Certificates and policy
forms that are improper for the requests made, or forms that have been withdrawn or replaced. This may arise in
a number of ways, such as through requests from parties without specific rights under a policy, or from insureds
or others seeking confirmation of coverage that is not available or in place.
The industry should only support the use of Certificates that are approved by carriers for policies they issue, and
that comply with applicable contractual and legal/regulatory requirements. Agents and brokers should not be
subjected to the risk of losing business for refusing to use unapproved Certificates forms, and should adhere to the
requirements of their appointment contracts with carriers as well as the law with respect to Certificates they use.
Approved Certificates forms should be reviewed and updated regularly to remain responsive to changing business
needs.
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2. Content
Those preparing Certificates are often subjected to undue pressure to alter the content of Certificates. This may
arise through requests for deletions, additions or other changes to the forms used, including customizing
Certificates to meet the specific or unique needs or desires of an insured or other party.
The industry should implement business practices that support enforcement of laws/regulations prohibiting
modification, alteration or amendment of Certificates or underlying insurance coverages except to the extent
permitted by law and approved by the carrier issuing the policy. The industry also should support the use of
uniform language on any forms used to respond to policyholders’ needs about insurance coverages in place so that
the requirements of underlying policies with respect to notification on cancellation, nonrenewal and/or material
changes in risk are not altered. Agents and brokers should not be asked to modify, alter or amend Certificates,
such as by purporting to indicate coverage that is not in place, waive rights, quote contract language, or alter
language approved by required insurers and/or regulators, or amend policies or endorsements. Carriers should be
responsive to requests for customized Certificates when and as needed, consistent with applicable legal
requirements. Regulators should be clear in their communications with the industry and public about the legal
requirements for Certificates and penalties for failing to adhere to those requirements.
3. Preparation, Maintenance and Notices
The preparation of Certificates has shifted in recent years from carriers to agents and brokers. Certificates
requests must each be handled individually through a largely manual process, and can be quite time consuming
and thus quite costly, particularly for agents and brokers with a significant number of insureds that have
construction policies in force. The additional manual processes typically required to maintain and provide notices
under Certificates is substantial from a time and cost perspective, so many carriers seek to have it performed by
agents and brokers, despite the knowledge that agents and brokers are not staffed or compensated to undertake
these tasks.
The industry should support efficiency in meeting the needs fulfilled by Certificates, including the development
of automated online tools to provide appropriate parties with policy information in a timely and accurate way.
This could obviate the need for Certificates to be prepared, so there would be no Certificates to maintain or notice
to be provided. It could be done in a way that would enhance responsiveness to policyholder needs in real-time,
while providing safeguards against the use of withdrawn or replaced Certificates, as well as improper
modification, alteration or amendment of Certificates without required approvals from insurers and/or regulators.
This would improve workflows and customer service; enhance accuracy; end the use of withdrawn or replaced
forms; eliminate requests for modifications, alterations or amendments that are not approved by insurers and
regulators; eliminate requests for modifications, alterations or amendments that are not aligned with coverage in
place; reduce costs of meeting Certificates requests; and enable agents and brokers to remain focused on sales and
service, to the benefit of carriers and customers.
4. Misrepresentation or Fraud
When insureds are unable to obtain the desired Certificates, some have prepared their own form or revised a form
provided to them. This kind of activity typically involves misrepresentation and/or fraud, and as such, is illegal.
It undermines the proper use, integrity and reliability of Certificates, creates pressure on agents and brokers to
assist in the improper preparation of Certificates, and opens the door to a plethora of litigation spawned by
inaccurate information about insurance policies. It also unfairly exposes the industry as a whole to negative
positioning in the press and with the public due to the intentional misconduct of others.
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The industry should support enforcement of all laws/regulations prohibiting misrepresentation and/or fraud in
connection with the preparation, dissemination and/or use of Certificates or other information concerning
insurance policies. Information on the importance of accuracy with respect to representations concerning
insurance policies should be made available to industry participants and those seeking Certificates through
articles, position papers, Best Practices information, and other materials. Insureds and their representatives also
should be provided with information about their legal obligations not to misrepresent any of their insurance
coverages to others.
*****
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Additional Reading and Resources in the Big “I” Virtual University
In addition to all of the VU library links interspersed throughout this program, the following are some additional
information sources on the VU. In addition, you’ll find enumerable CGL articles on peripheral issues.
•
Certificates of Insurance Resource Section
http://www.iiaba.net/VU/NonMember/Certificates.htm
•
E&O Certificates of Insurance Audio Podcast
http://psc-fileserver.prod2.podshowcreator.com/663AC0015F7A439382CD6DA41F43D41E.mp3
•
“Managing Commercial Lines E&O Exposures
(Part 2 of 3 - Certificates of Insurance)”
http://www.iiaba.net/VU/Lib/Bus/AM/EOLossControl/WiltsCLEO02.htm
•
“Automated Certificate Systems...How Accurate Are They?”
http://www.iiaba.net/VU/Lib/Tec/AS/Miscellaneous/FacultyCertificates.htm
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Other Additional Reading and Resources
There is also a wealth of information on the internet outside the VU, particularly from IRMI’s public web site.
The following are just some examples.
•
“What Does an Additional Insured Endorsement Cover?”
http://www.irmi.com/Expert/Articles/2000/Postel07.aspx
•
“What Does an Additional Insured Endorsement Cover?
Part II – Manuscript Endorsements”
http://www.irmi.com/Expert/Articles/2000/Postel10.aspx
•
“Is Additional Insured Coverage Becoming Just an Illusion?”
http://www.irmi.com/Expert/Articles/2002/Postel07.aspx
•
“Additional Insured Endorsements – A Potential Minefield (Part 3)”
http://www.irmi.com/Expert/Articles/2006/Stanovich03.aspx
•
“The Belt and Suspenders Approach to Contractual Liability”
http://www.roughnotes.com/rnmagazine/2003/sept03/09p70.htm
•
“What’s Fair Involving Additional Insureds?”
http://www.contractormag.com/articles/column.cfm?columnid=362
•
“Your Additional Insured Status: What Does It Really Get You?”
http://www.constructionweblinks.com/Resources/
Industry_Reports__Newsletters/May_24_2004/insured.html
•
“Certificates of Insurance: What Every New York Risk and Insurance
Needs to Know”
http://www.sacslaw.com/CM/Articles/Articles29.asp2
•
“Certificates Of Insurance in Construction Accident Coverage Litigation:
The Disclaimer Language Is Effective”
http://www.dcba.org/brief/junissue/2002/art40602.htm
•
“Graham v. USI MidAtlantic: Should I Be Concerned”
http://www.irmi.com/Expert/Articles/2006/Warren08.aspx
•
“The Additional Insured Book”
http://www.irmi.com/IrmiCom/Cart/Default.aspx?CategoryID=4&ItemID=400
•
“Subrogation Can Spell Trouble”
http://www.roughnotes.com/rnmagazine/1998/january98/01p79.htm
Professional
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How To Access the Big “I” Virtual University
Visit www.independentagent.com and select Virtual University from the top navigation menu. On the VU public
area home page, you will be able to access our Certificates of Insurance Resources section for free. Other features
of the VU require a logon as an IIABA agency member or a paid VU subscriber.
Big “I” Member Agencies –Free Access! Membership at the state association level entitles you to access to the
research library, newsletter, “Ask an Expert” service, white papers, consumer articles and more, at no additional
charge. Each person within an agency is required to log into the VU Home page with their own login ID and
password. Individuals can obtain their login ID and password by clicking on the “Don’t Know Login” link,
located on the Big “I” Web site, or by contacting their state association.
Subscription Services Are Available! If you are an insurance company employee, affiliate or an associate
member, you may purchase an annual subscription to the Big “I” Virtual University. Visit the Subscribe Today
Web page for details. Insurance company personnel are encouraged to visit the Company Partner section on the
Subscribe Today Web page, as discounted subscriptions may be available in recognition of a company’s support
of Big “I” programs.
How To Subscribe to the FREE VUpoint Newsletter
Much of this document originated from a number of articles published in our FREE bi-weekly email newsletter,
The VUpoint. You do not have to be an IIABA member or paid VU subscriber to receive this newsletter. We
currently have about 25,000 newsletter subscribers in over 70 countries around the world. According to a survey
conducted by Specific Software Solutions, the VUpoint was the #1 rated industry newsletter, garnering four times
as many votes as the second place finisher.
Each issue of the VUpoint includes articles on: (1) personal lines, (2) commercial lines, (3) agency management,
(4) sales and marketing, (5) customer service, and (6) technology and the internet. To read the articles in the
current issue and/or to subscribe for free, go to:
Subscribe to the FREE VU newsletter:
http:www.iiaba.net/VU/NonMember/Newsletter.htm
To subscribe, we only need your email address and the only two options pieces of information we ask for are your
state/country and how you hear about the newsletter.
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Agent Certificates of Insurance Article / Presentation
The following is an article that IIABA member agencies and their employees can submit for publication in
newsletters and magazines of local business and industry groups and associations such as contractors and
homebuilders, government entities, lenders, realtors, etc.
The article can also be used as a handout for 20-30 minute presentations to such groups and is accompanied by a
PowerPoint presentation. Both the article/handout (in a format that can be reproduced on the front and back of one
sheet of paper) and the PowerPoint presentation can be downloaded here:
http://www.iiaba/net/VU/NonMember/Certificates.htm
Certificates of Insurance
“Rolling Stone Syndrome or You Can’t Always Get What You Want”
A certificate of insurance is an informational document issued by or on behalf of an insurance company.
The certificate indicates that an insurance policy exists of a certain type and limits. Certificates are simply
snapshots of basic policy coverages and limits at the time of issuance of the certificate. Certificates are not
intended to modify coverages or change the terms of the insurance contract and they convey no contractual
rights to the certificate holder.
In your industry, you are no doubt often asked to sign contracts (or ask someone else to sign them) that
include certain insurance requirements that must be evidenced by a certificate of insurance. If the
certificateholder desires status as an additional insured under a policy, this can only be done by an
endorsement to the policy. A certificate alone will not change the policy.
Problems often arise when a contract makes demands that are, for all practical purposes, virtually
impossible to meet. Examples include requests for insurance for losses or damages that are uninsurable,
requests that agents do not have authority to execute or cannot legally comply with, requests that require
inappropriate certificate wording, and requests that are impractical from a market standpoint.
As a result, insurance agents are sometimes asked to provide a certificate of insurance that cannot comply
with the contract you may have already signed. In fact, you may have completed the job and need the
certificate in order to get paid. The purpose of this article is to illustrate how such problems can arise and
what solutions are available, if any, to address the most common problems. As the Rolling Stones put it, you
can’t always get what you want, but if you try sometime you just might find, you get what you need.
Uninsurable Certificate Requests
Sometimes contracts will attempt to transfer risks and liabilities that are largely uninsurable. For example,
the contract may require you to be responsible, under a commercial general liability (CGL) policy, for "ANY
negligent acts, errors or omissions" or "any and all liabilities" that result in "ANY claim, cost, expense,
liability, penalty, or fine."
A CGL policy typically covers bodily injury, property damage, and personal and advertising injury
liability that arise from “occurrences.” It often does not cover "errors and omissions" or fines and penalties. In
addition, the word "any" implies there are no exclusions when, in fact, the policy has many exclusions
ranging from pollution liability to faulty workmanship or damage to property in your care, custody or control.
It is advisable to have an attorney review contracts on your behalf. In addition, prior to signing any
contract, have your insurance representative review the insurance specifications, preferably in conjunction
with your attorney. He or she can advise what requirements may be impossible or difficult to insure. It is
important to know the costs before bidding on the contract and it's possible that truly onerous insurance
requirements can be deleted from the contract.
Often contracts will require your insurance to be "primary and noncontributory." The "ISO standard" CGL
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policy does say that it is primary with regard to the certificate holder's general liability policy IF the
certificate holder is an additional insured on your policy. So, the first order of business is to make sure that
the appropriate additional insured endorsement is attached to your CGL policy.
However, the undefined term "noncontributory" is meaningless in isolation. The term may just be used to
reemphasize that your insurance is primary and the additional insured’s is excess, or the intended meaning
may be that a waiver of subrogation endorsement is desired. However, it may mean that the certificate
holder's CGL policy will not contribute in any way to a loss even if that policy otherwise covers it. This could
mean that you will have to pay out of your own pocket any claim that exceeds the limit of your CGL policy
without contribution from the certificate holder's CGL policy.
It is in your best interest to attempt to clarify and, if necessary, strike the "noncontributory" wording from
the contract. If that's impossible, consider increasing your own policy limits or be prepared to assume a
potentially large uninsured loss.
“Illegal” Certificate Requests
Certain contracts require that the certificate holder be given additional insured status under a specific
endorsement number and edition date. It is not uncommon for a contract to request an "ISO standard" policy
form such as the CG 20 10 11 85 additional insured endorsement. Note that "11 85" refers to the November
1985 edition of this form. These forms typically must be filed with state insurance departments before they
can be used. Since later editions may have superseded earlier editions, it could be impossible to provide a
form that is 20+ years old and has been withdrawn by insurance department filing.
Your insurance agent can often provide a later edition form with comparable coverage. In some cases, two
endorsements might be necessary to replace a single older form, one providing ongoing operations
coverage and the other completed operations coverage.
The latter form, however, might not be available or only available at significant cost. If your insurance
representative is an independent agent, he or she will represent more than one insurance company, making
it more likely that your insurance can be offered to another insurer who is better able to meet your needs. In
any event, you will want to price this coverage before submitting your bid since completed operations
insurance, if available, can be substantial in price.
Also, contracts frequently mandate that coverage be extended to the additional insured's sole negligence.
In most states, sole negligence cannot legally be transferred to another party. Increasingly, even where
insurance transfer is permitted, insurers are using additional insured endorsements that prohibit assuming
the additional insured's sole negligence. The current “ISO standard” endorsements do just that.
If you are in a state that has anti-indemnity statutes or case law, then this should not be an issue.
Otherwise, you will want your insurance agent to determine if the insurer is still willing to assume sole
negligence under an additional insured endorsement. If not, the contract will need to be modified or
compliance will be impossible.
Inappropriate Certificate Requests
Contracts often specify that the certificate of insurance provide for a notice of cancellation to the certificate
holder. The problem is that all "ISO standard" additional insured endorsements make no provision for
cancellation notice to an additional insured. Perhaps acknowledging this, some contracts settle for the more
hopeful "endeavor to" provide notice of cancellation provision.
Keep in mind that, unless the additional insured endorsement provides for cancellation notice, the insurer
is usually under no contractual obligation to provide such notice. Even if an attempt is voluntarily made,
mistakes happen. In some cases, due to regulatory decree by the state department of insurance (New York is
an example), a certificate of insurance cannot make a promise of notification unless notice of cancellation is
provided for in the policy or endorsement.
Some organizations and government entities use their own certificates of insurance in lieu of the more
standardized ACORD 25 - Certificate of Liability Insurance form. These may create problems for insurance
agents because some states have laws or regulations prohibiting the use of such forms unless approved by
the state department of insurance.
These forms may include wording implying coverages or rights that don't actually exist under the policy,
again violating the law in many states, and may lack disclaimers designed to protect you and the issuer.
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These certificates may sometimes be almost exact duplicates of the "ACORD standard" form(s), creating
copyright violation possibilities.
Be very wary of these non-ACORD certificates of insurance. Rely on your independent insurance agent for
guidance on how to handle these forms. In many cases, they can be issued, but require referral to the
insurance company which can cause delays. Again, it is important to involve your insurance representative in
the process as soon as possible.
Impractical Certificate Requests
The contract may specify that certain coverages (e.g., completed operations) be provided or that certain
exclusions (e.g., pollution liability) be removed. Because of the proliferation of defective workmanship
claims in the construction industry, completed operations coverage may be difficult to procure at a
reasonable cost. Most insurers are unwilling to remove certain exclusions such as pollution liability and the
cost to purchase the coverage separately may be prohibitive.
Be sure to give your insurance representative ample time to search for insurers willing and able to
provide the coverages required by your contracts. If coverages are available, the premium costs need to be
included in your contract bid. If coverages are not available, you may be able to negotiate such requirements
from the contract or pursue another source of coverage.
It is not uncommon for your insurance representative to be unable to meet every requirement of the
contract you're being asked to sign, from the standpoint of coverages, policy rights, or completion of a
certificate of insurance. The other party to the contract may then inform you that they can provide a list of
agents who claim they can comply with the contractual requirements in full.
While it's possible that the person requesting the certificate is aware of agents who are better able to
comply with their requests, be cognizant that fraud and misrepresentation with regard to certificates is not
unheard of. If you are requiring certificates from subcontractors, be aware that bogus certificates do exist.
While it is rare, there are unfortunately some insurance agents who will issue certificates that do not
accurately reflect coverages and policy terms just to allow a contractor to get a job or a loan to close and for
the agent to retain the account. Since certificates are rarely legally enforceable against insurers or agents,
you may be incurring significant liability if a certificate is issued that does not accurately reflect contract
terms. It is important to do business with insurance professionals you trust implicitly and that you verify the
accuracy of the certificate.
As outlined in this discussion, the single best thing you can do in dealing with certificate of insurance
requirements is to involve your independent insurance agent before committing yourself to something that
cannot be accomplished. He or she can counsel you on how to best meet your insurance requirements and, if
not possible in some instances, provide an explanation as to why something is difficult or impossible, often to
the satisfaction of the requestor.
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Copyright © 2006-2009 Independent Insurance Agents & Brokers of America