Sometimes, Certificate Disclaimers Help
September 2010
Here's a quiz. We all know that standard ACORD
or ISO certificates contain disclaimers saying they do not "amend, extend or
alter" the underlying policy. Usually that means that representations of coverage
made in a certificate would not trump policy terms or correct underlying coverage
deficiencies. But under what circumstances would certificate disclaimers actually
benefit the certificate holder?
by
Rich Scislowski
IRMI
The answer, as shown by at least two court cases, is when the insurer tries
to take advantage of manuscript language in the certificate to limit or restrict
the policy's coverage in some manner.
Charter Oak Fire Ins. v. Lexington Ins.
In one of those cases, Charter Oak Fire Ins. Co.
v. Lexington Ins. Co., No. M2002–01752–COA–R3–CV, 2004 Tenn. App. LEXIS
150 (March 2, 2004), a fire destroyed a Chili's restaurant in Nashville, Tennessee.
After the fire, Chili's exercised its right to terminate the long-term lease.
The building owner was named as an additional insured (AI) on a property policy
issued to Chili's covering that location, and Chili's insurer paid the owner
for the fire loss. The owner submitted an additional claim for loss of rental
income, but Chili's insurer denied it.
The owner's property insurer paid the rental income loss, then brought this
subrogation action against Chili's insurer for recovery under a "rental income
extension." Its theory was that, since the building owner was an AI, he was
entitled to the rental income coverage, and Chili's insurer's coverage should
have been primary.
Chili's insurer argued in part that the certificate of insurance limited
coverage because it contained a note that the AI was being added for physical
damage only, not rental income. The appellate court disagreed because the certificate
contained disclaimers saying it was issued "as a matter of information only,"
and that it "does not amend, extend, or alter the coverage afforded by the polic[y]."
"Because the certificate has no effect on the coverage afforded by the policy,"
wrote the court, "we must look to the policy itself to determine whether loss
of rental income was an item included in the scope of [the AI] coverage." Looking
to the terms of the policy, the court determined that the owner's AI status
was not limited in any way. The court said:
the unambiguous language of the ... rental income extension
... cover[ed] economic loss in the form of lost rental income. As an additional
insured, this coverage would apply to [the owner] as no attempts were made to
limit this coverage for the sole benefit of [Chili's].
Therefore, the certificate could not be used to restrict the building owner's
coverage.
J.A. Jones Constr. v. Hartford Fire Ins.
In the other case, J.A. Jones Constr. Co. v. Hartford
Fire Ins. Co., 269 Ill. App. 3d 148, 206 Ill. Dec. 728, 645 N.E.2d 980
(Ill. App. 1st Dist. 1995), the court decided that the subcontractor's policy
provided additional insured coverage for the general contractor's sole negligence.
The subcontractor's insurer argued that the scope of coverage was limited by
a typed statement on the certificate saying the general contractor was an additional
insured "to the extent of [the subcontractor's] negligence." The appellate court
disagreed because there was disclaimer language saying the certificate "does
not amend, extend or alter the coverage afforded by the policies below." Therefore,
the certificate could not be used to restrict the general contractor's coverage.
Conclusion
Maligned and misunderstood, insurance people tend to view certificates as
little more than a nuisance. Yet, every so often, standard certificates can
save the day.
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