The response to the firm’s
last insurance alert addressing use of
Certificates of Insurance has been overwhelming: calls from clients; calls from
colleagues; very high readership through Mondaq; cross publication on
Law360.com; and quite a discussion on LinkedIn. It is clear this is a hot topic
for businesses and that additional information for readers is needed. This alert
follows up on the overall premise of the last – relying solely on certificates
is a risky business.
Dangers on Over Reliance of Certificates
As a reminder, Black’s Law Dictionary defines a Certificate of Insurance as a
“[d]ocument evidencing fact that an insurance policy has been written and
includes a statement of the coverage in the policy in general terms.” But for
those wanting to be added as an additional insured, the certificate is almost
always meaningless without the actual insurance policy being endorsed or a
policy term allowing blanket additions when required by a contract (“blanket
additional insured endorsement”). And that is where many companies run into
For some reason, the business community believes that Certificates of
Insurance are ironclad proof that another entity either has the purported
insurance coverage, or worse, has added the company as an additional insured.
Many lawyers, and a number of courts, will tell you that these certificates are
not worth the paper they are printed on. As one commentator noted, “the issuance
of certificates is one of the more dangerous documents that float between
insureds, insurers, and a myriad of third parties.” The reason for the danger is
that when there is a conflict or discrepancy between a certificate and the
actual policy, the latter controls. Remember, the policy can be changed without
any consent from the certificate holder.
Generally, these documents are mere evidence of the insurance coverage the
policyholder has at the very moment the certificate is issued. Insurance
companies almost universally do not issue these certificates, and many times do
not know they have been issued. This is particularly true when the “blanket
additional insured endorsement” is used. Insurance brokers issue the
certificates. If the insurance is cancelled the next day, the certificate is
Even more dangerous are companies that rely upon these documents as proof
that they have been added as an additional insured to another’s insurance
policy. The standard ACORD form states that the certificate cannot extend or
alter the coverage. The normal procedure requires the broker to submit a request
to the insurer to add an entity as an additional insured, which then endorses
the policy. Without the endorsement, your chances of being an additional insured
are slim, regardless of what your contract may require or what the certificate
may say. In short, the only safe thing is to demand to see the policy and
From Risky Business to an Academy Award-Winning Business Practice
A company can prevent risky business many ways through proper drafting of
contracts and the requisite level of follow up.
- First, the entity being added as an additional insured should not rely upon
the certificate as the sole source of evidence. You should demand to see the
endorsement issued by the insurer. If the broker issues the certificate saying
your company is an additional insured, but the broker fails to have the policy
endorsed, it is very likely that you are not an additional insured and your
certificate is not going to convince the insurer otherwise.
- Contract language requiring an additional insured status should be clear. The
careful company negotiates the level of insurance coverage required, includes a
provision that the endorsement (or even whole policy) must be provided – not
just a certificate, and does not try to claim additional insured status for
insurance that will not truly cover them. An ounce of prevention and some legal
fees is a small price to pay to prevent a costly insurance coverage fight after
the loss, and your only evidence is the Certificate of Insurance.
- Asking for a broker to use an outdated ACORD form or altering the terms on the
currently approved forms can only lead to trouble in the long run. In September
2009, ACORD changed the ACORD 24 and 25 forms, and altered the remainder in
December 2009. According to commentator Bill Wilson, the changes came about from
insurance regulators taking the position that “notice of cancellation is a
policy right, not a voluntary service, and should be governed by the policy.
Only filed forms can grant policy rights, not certificates.” Wishing for advance
notice of cancellation and trying to now demand it on the certificate is not
going to happen from the careful broker, in light of the new changes on the
ACORD forms. Require the opposite party to the contract to provide notice of
cancellation or changes in the insurance, because in all likelihood, you are not
going to receive it from the insurer or agent.
Proof of this new change is evident from an October 2010 release from MARSH:
Effective Oct. 1, 2010, Marsh transitioned to the new ACORD Certificate forms
24 (2009/09) and 25 (2009/09): the most significant change to these documents is
the change in the cancellation language. All Marsh renewals that require
certificate issuance and all in force certificates will be converted to the new
ACORD forms, in compliance with state regulations.
The intent of the new cancellation language is to affirm that any cancellation
notice is governed by the terms and conditions of the insurance policy, and that
notice of cancellation (NOC) is not granted via a certificate of insurance. This
clause now reinforces the cancellation notice provisions detailed in the policy.
It is critical that companies understand the new ACORD forms and how to
properly incorporate them into their insurance program.
- Watch out for how your contract requirements will interact with the insurance
policies. As Bill Wilson, from a November 2009 article, highlights: “One of the
most common requests made when additional insured status is requested on a GCL
policy is that the certificate of insurance includes a statement from the agent
that such coverage is provided on a ‘primary and noncontributory’ basis. The
problem with complying with this request is that it is the additional insured’s
CGL policy that governs whether insurance is primary and noncontributory.
Therefore, the downstream party’s agent cannot make such a statement without
knowing what the additional insured’s CGL policy says . . . which is almost
never the case.” Furthermore, do not use outdated insurance terminology in your
contracts addressing insurance requirements between the parties. As Wilson
further notes, “Current ISO additional insured endorsements don’t cover sole
negligence of the additional insured, yet contracts are still being used that
demand this, even in states where prohibited by anti-indemnity laws.”
- Lastly, a program should be put in place for someone in your company to track
Certificates of Insurance, or outsource that function. When your project is
ongoing past the expiration date of insurance as noted on the certificate,
someone needs to follow up to ensure that the insurance is renewed and your
company is again added as an additional insured on the policy. There are plenty
of lawsuits where the insurance was not renewed, no one checks, and a loss
occurs. Surprise, no insurance is available.
It is critical for companies to be aware that case law interpreting the use
of Certificates of Insurance, particularly outside of automobile insurance, is
few and far between. This increases the risk for businesses that make it their
practice to routinely rely on the certificate as the sole evidence of insurance
in place, the scope of coverage, notice of cancellation, and additional insured
status. In short, it is risky business relying on such certificates without
implementing the proper procedures for contracting and then follow-up.
For more information on this issue and how McGuireWoods assists policyholders
in protecting and recovering their insurance rights, please contact the author.