IRMI Update—Issue #183
An E-mail Newsletter for Risk and Insurance Professionals
ISSN: 1530-7948
May 7, 2008
In This Issue
Colleague,
For good reason, our last issue's editorial on certificates of insurance
inspired many readers to respond, voicing their frustration with the current
state of affairs (see "Your View" below). Contract risk
management is still the most misunderstood, misused, and controversial technique
used by risk professionals. Unenforceable indemnity provisions, antiquated insurance
requirements, and conflicting insurance provisions are all too frequent in leases,
construction contracts, and other business documents.
Is this one of the monkeys on your back? If so, you need the strategies and
tactics in Contractual Risk Transfer, one
of our best selling publications. Most risk and insurance professionals have
access to it—either in print, on IRMI Online, or on SilverPlume Sage—and you
are probably among them. Here are three of the many things it can help you do:
- Make certain the indemnity clause in your contracts doesn't violate
your state's anti-indemnity statute (our state-by-state chart is updated
frequently).
- Draft insurance requirements that utilize modern insurance terminology
to exactly specify what you want (with the boilerplate model language).
- Develop rock-solid arguments to negotiate unnecessary and unobtainable
risk and insurance requirements out of contracts drafted by people with
other organizations that don't know what they are doing.
If
Contractual Risk Transfer
is on a bookshelf or computer near you, use it to help cure your contract headaches.
If you don't have access to it, see what you are missing.
And may you never again need to explain to someone why a commercial general
liability (CGL) policy doesn't need broad form property damage or cross-liability
endorsements!
Thank you for the trust and confidence you place in IRMI as your risk and
insurance information provider of choice.
Have a great day.
Jack
Jack P. Gibson, CPCU, CRIS, ARM
President
IRMI
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Whenever possible, place the flood insurance with the same insurer as the
one that writes the property insurance. This results in one insurer and one
adjuster handling the loss, avoiding the wind insurer trying to push the loss
off on the flood insurer, or vice versa.
As long as adequate flood limits have been purchased (may involve purchasing
excess flood coverage), the loss should be paid in full, avoiding all the pain
and hassle we still see today from so many insureds who were not set up this
way.
By: Bill Lockhart, Producer
Advanced Insurance
Underwriters
Hollywood, FL
wlockhart@advancedins.com
SUGGEST A RISK TIP: Send us a practical tip (less than 300 words) for identifying
and managing risks, buying insurance, managing claims, or filling gaps in insurance
coverages. Submit your
risk tips. We'll acknowledge your contribution as we did for Bill.
We have recently updated a number of the reference manuals in the IRMI library
and published new issues of The Risk Report
and Captive Insurance Company Reports.
To make sure you don't miss any of this new information take 30 seconds to scan
the "What's New" summary page.
For
IRMI Online and Print subscribers
For
SilverPlume Sage subscribers
There are over 1,000 risk management and insurance
articles on IRMI.com. Below you'll find summaries of some recent additions
with links to the articles.
You'll save hours of research time with
RMIS Review from
IRMI. This one-stop resource relieves the stress of selecting and purchasing
a system, and the risk of choosing the wrong one for your needs. See a sample
product evaluation, vendor comparison charts, plus
user feedback on RMIS systems
and vendors.
IRMI Update 182 offered a suggestion for making
insurance certificate issuance more streamlined and automatic, thus faster and
more efficient. Readers provided their suggestions for improving this frustrating
process below. Read more about the problem and the proposed solution.
-
You scored a bull's eye on this one. Most of my work is with contractors,
and particularly with the more technical aspects of their risk transfer
exposures. Certificate requirements are a constant source of pain for all
of us. Both the standard AIA and AGC contract documents ask for something
that the insurers won't do; they require that the policies won't be "canceled
or allowed to expire" without (usually 30 days') notice. None of my insurers
will guarantee to send notice to an additional insured at all (as you know,
the policies don't require it), much less notice of expiration. Some don't
care if we doctor the cancellation language to guarantee notice, and some
will not permit it, but none will guarantee it. Those that permit it say
it doesn't matter anyway, because of the disclaimer on the reverse side
of the ACORD Certificate. Our E&O insurer (PAR) is very much against this
practice. Without exception, we tell our contractors to overstrike the "or
allowed to expire" wording, and whatever else exceeds "endeavor to" provide
notice of expiration. Most owners don't seem to care, but others (typically
those with staff attorneys) will push back on it. I've seen specs with their
own certificate forms attached (which curiously always seem to guarantee
notice of all sorts of things), and I've even seen the Property Certificate
specified with revisions to accommodate casualty policies.
Part of me feels the pain of those who want guaranteed notice, but most
of me thinks we should not be doing their job (keeping track of contractors'
coverage), and understands the difficulty involved for the insurers to guarantee
to provide notice to millions of certificate holders.
The whole cancellation issue strikes me mostly as a tempest in a teapot.
Very, very few reputable contractors endure midterm cancellation—it's very
rare, unless a shaky contractor can't pay its premiums. There are many other
issues in complying with contract insurance requirements as you know, but
this one is persistent. Even an Internet tracking system such as you suggest
will put a burden on insurers that they are likely to fight against.
—Kirk A. Johnson, Senior Consultant, SilverStone
Group, Omaha
-
You are right on target with the certificate issue. Agents and staff
are oftentimes asked for something beyond standard Acord certificates. Staff
members aren't specialists in that area, it takes time to administer, and
insurers need to grab the horns and directly deal with the issue. It would
save time, add to professionalism, and give the insurer a sense of what
third parties are asking every time. They could be in a better position
to help manage the process. You hit a nerve with this challenging issue.
—David Ramsey, Director, Primary Source Insurance
Agency, Inc., Owatonna, MN
-
This whole dance with respects to certifying insurance coverages is a
huge waste of time that accomplishes little. Certificate holders and insurers
alike are relying on the agent/broker to bear the burden of administration
of certificates and if something goes wrong, it's the agent/broker again
caught right in the middle. Insurers have shoved as much of that responsibility
onto agents/brokers as possible. Add to that, agents/brokers have tried
to push the issuance of certificates down to the least skilled employee,
which adds to the looming disaster. Finally, certificate holders try to
create "contracts" out of certificates, which of course was never the intent.
Agents/brokers (I am one of them) have allowed this to happen to a certain
extent. Under the myth that issuing certificates is "service," we've allowed
the insurers to push the responsibility onto our shoulders. If asked to
participate in a tough situation, insurers simply ignore the request and
advise something like "just be sure to issue the certificate accurately".
I've been advocating for some time that it is time our insurers step
up and take a more active role in providing certificates and build online
certificate portals for certificate holders, agents, and clients. Why in
this day and age do we (agents/brokers) take a request (e-mail, fax, letter,
contract, etc.), try and evaluate the nuances of the request, re-enter the
information into an agency management system, and issue the certificate,
only to have the insurer then say, "Please don't tell me or send me a copy,
but if you screw it up, it's your rear end"? It's time to make a major change
in how this process is handled.
—Craig Wengerd, Executive Vice President, CBIZ Insurance
Services, Inc., Cumberland, MD
-
From the agency standpoint, certificate holders can be a pain. I've had
a bank refuse the certificate because I typed "NA" after the name and not
"N.A." I've had certificates refused because a comma was in the wrong place.
I've had others refused for similar ridiculous reasons. Certificates are
time consuming, and redoing them for something that does not matter a whit
is very aggravating to the agents! Certificates are not all I do, after
all!
—Theresa Gildart, Account Representative, HRH, Houston
-
The editorial should read "no insurance companies issue certificates
of insurance." Insurance companies make a point of telling their agents
not to send in copies and, if you do, we will simply throw them out. It
has become somewhat of a "if I don't know about it, then it can't hurt me"
attitude and indeed, the entire responsibility is on the agents shoulders.
The problems associated with an automated system as described unfortunately
appear too difficult overcome. With the constantly changing landscape of
contract requirements, and the many edition dates of additional insured
endorsements requested, there is no automated system capable of handling
the problem.
Requests such as "CG 20 10 11 85 or equivalent" require individual analysis
and often policy modification to achieve the desired result or at least
a compromise that will satisfy what has now become a reviewer who is not
even vaguely familiar with what the differences even are.
The good news in all of this is that hopefully those agents who have
kept up with various edition dates, proprietary additional insured endorsements,
and general contractor requirements will continue providing value-added
service to their contracting clients. Our goal continues to be to educate
our clients that the practice is not "a waste of time."
—James A. Lawson, CPCU, CIC, Vice President, Esser
Hayes Insurance, Naperville, IL
-
Our agency spends an inordinate amount of time dealing
with Certificates of Insurance and the increasing frequency of requests
to modify coverage, and the language contained on them. Your idea to have
the insurance company set up a web based portal where certificates are issued
and maintained is a good one. Getting them to do it will be the issue!
—Michael W. Powell, Senior Vice President, Cabell-Bankers
Insurance, Charlottesville, VA
-
Some of the larger brokers are already doing something like you suggest.
But instead of a certificate of insurance, it is a memorandum of insurance.
Often, the information provided in a memorandum is considerably more than
what is provided by the certificate. These facilities do not provide copies
of endorsements, but the fact that the memorandum lists the endorsement
numbers, that should be sufficient, to the extent they are an ISO-type,
of course. What is advantageous from the standpoint of the agent or broker
is that the document is not signed, so there is no accountability. Overall,
the primary advantage is being able to obtain information expeditiously
on a 24/7 basis.
—Donald S. Malecki, Principal, Malecki Deimling Nielander
& Associates LLC, Erlanger, KY
-
Your suggestion is the best I have heard. It appears the available alternatives
in the current market for certificate management relate to schemes by vendors
and to a large extent brokers, as a method of generating additional revenues
rather than addressing the issues you raise in a meaningful way.
—Alphonse A. Denayer, President, International Management
Corporation, Waxahachie, TX
-
As one of the leading firms in the United States providing certificate
of insurance tracking as a third party, we feel the inefficiency arises
from insurance carriers lacking the automation required to facilitate the
volume of requests received from its policyholders. Today, we still see
a majority of the insurers' manuscript endorsements made with a typewriter.
Certain insurers, such as California State Worker's Compensation Fund, currently
have an automated system in place whereby the insurance broker will input
the data on a Web-enabled system and the certificate (including any applicable
endorsements) is transmitted by fax, e-mail, or U.S. mail. The same notification
is provided for midterm policy cancellations. We find this type of system
to be the most efficient for both parties involved in the issuance and tracking
of certificates.
—Rick Lopez, President & Founder, Insurance Tracking
Services, Inc. (ITS), Long Beach, CA
-
When a certificate of insurance is used for the purpose it was designed,
a snapshot of coverage, there is no problem. Problems arise when certificate
holders require manuscript language intended to broaden coverage or modifications
to the certificate's boilerplate. Using the analogy of the certificate as
a snapshot: you can "photo shop" away your wrinkles, gray hair, and paunch,
but you're still old and overweight!
—Kenzie Endo, Vice President Marketing, Insurance
Factors, Honolulu
-
As a licensed agent & broker for 50 years, and an insurance litigation
expert of 20 years (1,500+ cases, 24+ states) I see very frequent E&O lawsuits
against producers based on errors in the issuance of certificates—by which
they misstate the coverages/limits, or most often, attempt to name the certificate
holder as an additional insured without requesting the required endorsement.
Something must be put in place to better educate producers on what may and
may not be done by certificates, and will prevent producers from making
the same foolish and repeated errors.
—Armando M. Castellini, J.D., Castellini Insurance
Services, Denville, NJ
-
The more pressing issue on certificates of insurance (COIs) is what information
they are intended to convey. Our insureds often receive COIs from subcontractors,
without any information regarding substantial deviations from the ISO CGL
Form, including absolute employee exclusions. This does not extinguish the
liability of the subcontractor; it merely means they may be uninsured. Before
we worry about issuing COIs, the market should think about a protocol for
conveying these substantial deviations.
—Mark Blackman, Chief Underwriting Officer, NYMAGIC,
Inc., New York
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