Partner George Martin recently circulated a news alert on the use of certificates of insurance to the firm’s more than 1,000 insurance coverage news list subscribers. Counsel to Counsel, a Lexis-Nexis publication, republished the alert in its June edition of Insurance Law. The alert will also be available on martindale.com.
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. And that is where many companies run into trouble.
For some reason, the business community believes 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, don’t believe these certificates are worth the paper they’re 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. If the insurance is cancelled the next day, the certificate is meaningless.
Even more dangerous are companies that rely on these documents as proof they’ve 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 endorsement.
On the flip side, many businesses find it burdensome to add entities as additional insureds to their policies. They simply call their broker and ask to have the opposing business added, receive a Certificate of Insurance, and then forward it to that entity.
For example, a commercial property owner is repairing fire damage. In negotiating a construction contract, it asks the general contractor to add it as an additional insured on the general contractor’s liability policy. The contractor has a lot of projects and handles such requests often, which poses a problem to have its insurance policy endorsed each time to add the new entities. A lot can slip through the “due diligence” cracks in this process. One answer is to purchase insurance that contains a “Blanket Additional Insured” endorsement.
These endorsements allow the policyholder to basically add an additional insured to the policy automatically when it is required by the business contract. In the example above, if the contract between the owner and general contractor requires the contractor to add the owner as an additional insured, and the contractor has a Blanket Additional Insured endorsement, then the owner is automatically added to the policy as an additional insured.
Here is an example of such policy language:
WHO IS AN INSURED – is amended to include any person or organization that you agree in a ‘written contract requiring insurance’ to include as an additional insured on this Coverage part . . .
Thus, with the Blanket Additional Insured endorsement, it’s the contractual language that adds the additional insured. There is no need to rely on the broker, and ultimately the insurer, to issue a new endorsement specifically adding a new entity each time. This prevents the contractor from having to request that the insurer add such parties every time additional insured status is requested, and it prevents potential errors in accomplishing that task among the policyholder, broker/agent, and insurance company.
It is critical to note that when being added as an additional insured in such situations, you are added and insured only for liability based on the named insured’s acts or omissions. The Blanket Additional Insured endorsement does not allow a company to be added to another’s insurance policy in an effort to provide protection for its own primary negligence.
Thus, the protection is for when the additional insured is sued for vicarious liability scenarios based on the acts of the named insured. This prevents companies from getting added to another’s liability insurance, and in essence, obtaining free insurance coverage. Companies, such as the property owner in the example, still need their own liability insurance to provide coverage for their own primary acts that result in a loss.
Those requesting to be added as additional insureds with a Blanket endorsement should beware and still request to see the actual endorsement. This is critical as there are additional terms within the endorsement affecting coverage of the company being added. For instance, the Blanket endorsement may contain terms making the coverage excess over any valid and collectible other insurance. However, the endorsement may allow the named insured’s coverage to remain primary for the additional insured, if the contract between the two businesses requires such a layering.
Another concern is that a Blanket endorsement may impose standard conditions on the additional insured to follow in order to invoke the insurance coverage. Thus, the additional insured is responsible to (1) give written notice of an occurrence; (2) send notice of a lawsuit brought against it that may be covered; (3) cooperate with the investigation, settlement or defense of the case; and (4) possibly tender the defense of the lawsuit to any other insurance company that may owe coverage.
Many ways exist for a company to prevent finding out it doesn’t have coverage through proper drafting of contracts and the requisite level of follow up. First, the entity being added as an additional insured shouldn’t rely on the certificate as the sole source of evidence. As noted above, you should demand to see the endorsement issued by the insurer, even when a Blanket endorsement is used.
Contract language requiring an additional insured status should be clear and track the requirements of the endorsement. The careful company negotiates the level of insurance coverage required, includes a provision that the endorsement (or even the whole policy) must be provided – not just a certificate, and doesn’t try to claim indemnity provisions for claims insurance won’t cover. An ounce of prevention and some upfront effort is a small price to pay to prevent a costly insurance coverage fight after the loss.
Lastly, a program should be put in place for someone in your company to track Certificates of Insurance, or that function should be outsourced. 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, there is no insurance available.
For more information on insurance requirements involving additional insured issues or losses, please contact the authors.