New Acord Certificate of Insurance Creates New Challenges for Insureds

>By> Brent Winans, CPCU, ARM

The Certificate and Evidence of Insurance forms which ACORD^Ò made effective in late 2009/early 2010 have raised alarm among insurance certificate holders and the insureds that must provide those certificates.  Unless insurers issue manuscript endorsements to their policies (which is unlikely), insurers no longer make any pledge that they will even attempt to notify the certificate holders if the policies are cancelled.  The new certificate forms have eliminated the assurance that the insurer would “endeavor to mail __ days written notice to the certificate holder.”  They simply state that “…should any of the above described policies be cancelled before the expiration date thereof, notice will be delivered in accordance with the policy provisions.”

What does that mean to certificate holders under standard insurance policies?

1.  Liability and auto – Even if a certificate holder is an additional insured, it will not be notified if the policy is cancelled.  Only the First Named Insured will be notified.
2. Workers compensation – Certificate holders will not be notified of cancellation, since the policy requires the insurance company to notify only the covered employer.
3. Property – Mortgagees and loss payees on standard property policies will be notified – 10 days before the insurer cancels for nonpayment, 30 days before it cancels for any other reason and 10 days before it nonrenews the policy (unless modified by state requirements).  Other certificate holders, even additional insureds, will not be notified.
4. All policies – Certificate holders, even additional insureds, will not be notified if the insured itself cancels the policy.

How should insurance requirements in contracts be changed in order to respond?

1. Contract language requiring insurance certificates to state that “__ days notice of cancellation be given” and requiring that the “endeavor to” language in the certificate be deleted, is no longer applicable.  Even if changes are made to the certificate, ACORD^Ò has made it exceedingly clear that changes to the certificate do not change the policy.
2. The contract should require that the insured party provide immediate notice to the owner, lessor, etc. if the insured entity receives notice of cancellation or nonrenewal from its insurer.  This provision is especially important since many insurers will not be willing to comply with the recommendations below, especially for smaller insureds.  Unfortunately, this has the obvious drawback of depending on the very party who is non-performing to report the situation.  To learn more about how and why the City of Atlanta instituted this approach, see http://www.aci-na.org/static/entransit/Caput–Legal%20Aspects%20of%20Airport%20Insurance.pdf
3. Contracts should require that the insured’s policies be endorsed to meet the certificate holder’s reasonable requirements.  (However, as stated above, not all insurers will be willing to cooperate.)  If the insurer is somewhat cooperative, it may be willing to extending the same notification rights to the certificate holder that it gives to the first Named Insured.

Below is sample manuscript endorsement wording that would accomplish that end.  Very large insureds may be able to obtain even broader notification rights.

 “If we cancel or elect not to renew this policy, we will give written notice to ____________ at the following address __________________.  We will provide the same notice of cancellation and nonrenewal that is required by this policy to the first Named Insured.”

So if the certificate holder is given the same notice of cancellation and nonrenewal as the first Named Insured, what does that actually mean with standard policies?

State laws in most states change the above requirements, requiring more notice in many situations.  For instance, Florida requires that carriers provide the first Named Insured with 45 days notice of cancellation in some circumstances.  The provisions of the different state laws are often complicated, differing not only by line of coverage but also by length of time the policy has been in force, the specific reasons for the cancellation or nonrenewal, etc.  The specific state requirements can be accessed through the IRMI Insurance Cancellation Guide published by the International Risk Management Institute.  www.irmi.com

•  The larger the insured client, the more likely that it will be able to obtain additional concessions from its insurer.  If possible, those additional provisions should require:
• Advance notice to the certificate holder even if the insured initiates the cancellation or nonrenewal and
• Minimum cancellation and nonrenewal provisions, regardless of what is provided by the standard policies or various state laws.

Why not just require the old form?

You may ask, “Why doesn’t the certificate holder simply require the insured and its insurance agent to provide the old certificate of insurance form?”  What certificate holders and insureds should know is that if an agent does modify a standard certificate or signs a custom one that provides notice of cancellation, it is almost certainly doing so against the explicit direction of the insurance company.  So while the certificate holder may have a paper in its hand which states that the insurance company will provide notice of cancellation, the insurer will not stand behind it.  If coverage is cancelled, all that the certificate holder has probably gained is the right to sue the agent and its errors and omissions carrier.  Since the agent is probably executing the modified certificate with the full knowledge that it is not authorized to do so, coverage under its errors and omissions policy is suspect.  For a fuller understanding of why an agent executing modified certificates is engaging in a practice which may be unauthorized, deceptive and potentially illegal, please see the article written by Bill Wilson of the Independent Insurance Agents and Brokers of America at http://www.iiaba.net/eprise/main/VU/NonMember/WilsonCancellationNotice.htm. 

Vendor solutions

I am aware of about 20 different vendors who provide some form of insurance certificate and verification service.  I have found only one vendor that provides a certificate service that completely bypasses ACORD^Ò certificates and their problems.  I pass on their information as a service to readers.  Their name is Ins-Cert Corporation, and information on their services can be found at www.Ins-Cert.com.  Their system is Web based and requires the agent/broker to agree to make a “good faith effort” to enter notices of cancellation into their system.  The system then automatically sends cancellation notices to all certificate holders by email.  Their system appears to offer a solution to the both the problem of cancellation notices and also the problem of fraudulent ACORD^Ò certificates.  From my investigation I believe they offer a legitimate service and are worthy of consideration.  Readers of this paper who have found other workable solutions to this problem are asked to contact me at bwinans@plastridge.com.

Why the “Good Ol’ Days” Weren’t Really So Good

Certificate holders certainly wish that the insurance industry would find a way to notify them when an insurance policy is cancelled.  But in reality, they may not have lost much in this change besides the illusion that the insurer would notify them.

• Many insureds have a “blanket additional insured” endorsement on their liability policies.  That means that anyone that the insured agrees to name as an additional insured in a contract is automatically given that status in its insurance policy.  But that also means that the insurance company does not obtain the names and addresses of those additional insureds, so the insurer does not know who they are or how to notify them.
• Certificate holders would reasonably assume that as a matter of good faith, insurers would require that the agents/brokers send them a list of all of the certificates that they issued so that the insurer could “endeavor” to give notice of cancellation.  Incredibly, that is not the case.  Many carriers have explicitly told the agents/brokers not to send them copies of the certificates.

Since many insurance carriers have not made the good faith effort to comply with the notice requirements of the old certificate forms, not much is lost by eliminating the notice requirements altogether.  At least false promises are no longer being made.

Closing thought

In writing about these changes on its own Website ACORD^Ò explained that it had to change its certificates because they sometimes contradicted or expanded the duties contained in the underlying insurance policies.*  Unfortunately, they were not able to cooperate with the other players in the insurance industry (the insurance companies, ISO and NCCI) to craft a solution which solved that problem while also meeting the legitimate business need of certificate holders to receive a cancellation notice.  The outcry from the business community may need to get much louder before a better solution to this problem is reached.

*(http://www.acord.org/standards/forms/Documents/20100628_ACORDFormsNotice.pdf)

For a copy of this white paper written with contract drafting attorneys in mind, see:

http://www.plastridgeinsurance.com/NewInsCerts-WhatAttorneysNeedToKnow1.1.pdf

Many contracts I review refer to insurance terms, coverages and policy forms that have not been widely used in the marketplace for 25 years.  Others contain insurance requirements that are impossible to meet. 

Brent Winans, CPCU, ARM, VP – Risk Management Services, Plastridge Agency For assistance in drafting contemporary and achievable insurance and risk management language for contracts, contact Brent Winans, CPCU, ARM, VP – Risk Management Services, Plastridge Agency, 820 N.E. 6^th Avenue, Delray Beach, FL 33483.  561-272-5221  For information on other fee-based (no insurance sales) risk management services, see http://www.plastridgeinsurance.com/rics.pdf.

The information presented here is general and is not intended as legal advice.

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