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Should Agents Send Certificates to Insurers?

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Bill Wilson
Abstract
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. What should agencies do when told by a carrier not to send copies of certificates?

Note: This article was originally written with the pre-September 2009 ACORD certificate forms in mind. Those forms included an "endeavor to" notice of cancellation statement that has now been removed. Despite that change, we still recommend that insurers be copied on certificates of insurance. The reasoning is reflected in the court cases cited below. Sometimes an error or omission occurs and it is not clear where in the certificate/AI/binding/policy issuance process this occurred. As the court cases indicate, the insurer may attempt to disassociate itself from litgiation by stating that it never got a copy of the certificate and so was unaware of the situation or circumstances. A certificate of insurance is issued by an agency on behalf of the insurer. Therefore, it is our opinion that the principal in the relationship should be notified and made aware of what the agency is doing on their behalf. If the insurer wants to discard the certificates, that is their choice.
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. What should agencies do when told by a carrier not to send copies of certificates? This question was recently raised (for the nth time) by one of our member agencies:
"One of our companies doesn't want us to send them copies of the certificate of liability insurance. My question is two part:
"1) The certificate of liability form states the 'issuing INSURER will endeavor' to notify the certificate holder of cancellation...how can the agency be held responsible for notification for what is stated clearly the carrier's responsibility?
"2) If the company doesn't want a copy of the certificate, why should the agency start notifying certificate holders?
"Should agencies assume the responsibility of what is the carrier's duty? Does the agency have a legal exposure? If yes, then how do you suggest agencies respond?"
I taught my first E&O class close to 20 years ago. The issue of cancellation notice was addressed then and probably had been for years. In general, E&O carriers recommend that agents not provide notice of cancellation to insureds, mortgagees, loss payees, certificate holders, or anyone else. Cancellation is the dissolution of a contract. The parties to the contract are the insured and insurer, not the agent. Ancillary parties either have a contractual right of notice under the policy (e.g., mortgagees and some loss payees) or they don't (most certificate holders, even if additional insureds). Only a party to a contract can cancel it and that party is the one charged with the responsibility of notice.
I recently participated in a teleconference on this and related issues last week. An E&O carrier representative and attorney participating in the call advised, regardless of the carrier's directive, that certificates should be copied to the insurer. You're right...the certificate says that the insurer, not the agent, will endeavor to provide notice of cancellation. Without a copy of the certificate, that would be impossible and issuance of the certificate would appear to be a sham. In a court hearing, how would it look if the plaintiff's attorney accuses the carrier and agency of fraud or misrepresentation for making a claim they clearly had no intention of compying with? (Note: For the ethics of this practice, check out "Certificates of Insurance: Will You 'Endeavor To' Be Ethical.")
In general, since the parties to the contract are insurer and insured, agencies should NOT be sending out cancellations to anyone. If it's absolutely necessary, then EVERYONE should be getting such notices. Agencies should insist on hold harmless agreements with carriers who do not intend to comply with certificate provisions that they will endeavor to provide notice of cancellation.
We have an article called "Certificates and Court Cases" that outlines a number of situations where agents have been found liable for activities involving certificates of insurance. One such case was brought to my attention recently. In Marlin v. Wetzel County Board of Education, 569 S.E.2d 462 (West Virginia Ct. App., 2002), "[t]he insurance company asserted that it never received the certificate of insurance or any other document suggesting the insurance policies needed to be amended" to make the Board an additional insured. According to the court, "[The insurer] does not dispute that its agent issued a certificate of insurance listing the Board as an additional insured. Instead, [the insurer] argues that it had no knowledge of the certificate's existence, and therefore could not modify the actual policy to include coverage for the Board."
In addition, most recently (June 2009) in Erie Insurance Group v. National Grange Mutual Ins. Co., the New York Supreme Court found the insurer not responsible in part because it never received a certificate of insurance:
A portion of the insurance policy issued by NGM to McClary stated, "Each of the following is added as an Additional Insured . . . [a]ny general contractor, subcontractor or owner for whom you are required to add as an additional insured on this policy under a written construction contract or agreement where a certificate of insurance showing that person or organization as an additional insured has been issued and received by [NGM] prior to the time of loss."  [emphasis added]
One possible reading of the provision is that the construction contract or agreement to list someone as an additional insured must be in writing, and a certificate of insurance listing that person or organization must be issued and received by NGM prior to the loss-inducing incident. The provision could also be read as containing two alternate ways of including a person or organization as an additional insured: if a written construction contract so requires, regardless of whether NGM is ever notified; or if any agreement – oral or written – so requires and a certificate of insurance listing that person or organization is received by NGM prior to the loss-inducing incident.
Regardless of which interpretation is used, the policy's contractual requirements have not been satisfied so as to include Pine Ridge as an additional insured. The record does not contain a written contract or agreement between McClary and Pine Ridge. Nor did anyone introduce a certificate of insurance listing Pine Ridge as an additional insured, let alone proof that such a certificate was sent to or received by NGM. In fact, NGM's employee affirmed that no such certificate was ever received. [emphasis added]
Under the first reading of the policy provision above, plaintiffs cannot prevail because the agreement between Pine Ridge and McClary was not in writing and no pertinent certificate of insurance was issued or received by NGM. Under the second reading, the first alternative is not met due to the lack of a written contract or agreement and the second alternative is not met due to the lack of the required certificate of insurance. [emphasis added]
Ideally, agents should continue to provide copies of certificates to insurers and insurers should "endeavor to" provide notice of cancellation to certificate holders. The alternative is for insurers to provide agents with an ironclad hold harmless agreement that will defend and indemnify agents for claims or suits involving certificates issued on behalf of parties insured by such carriers.
For additional questions and answers about certificates, check out the articles, "Following Up on Certificates of Insurance" and "Certificates of Insurance Q&A."
Last Updated: November 10, 2010

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Revised: February 2012