We received 55 replies to my last editorial in which I expressed the opinion that it was a waste of time to require modifications of the ACORD certificate (or a special manuscript certificate) from parties on whom you impose contractual insurance requirements. You can read a selection of them below. In the editorial I asked to hear from anyone who had seen a loss paid on behalf of a certificate holder as a result of a certificate modification, and not one of our 29,000 readers indicated they had seen this happen. If you are engaging in this practice, perhaps your risk management resources might be better spent on other activities.

All of us at IRMI are getting excited about the upcoming 23rd IRMI Construction Risk Conference. The agenda is set, the speakers are working on their presentations, and we're in the process of making the CE filings. You can view the agenda and speaker biographies or even register on our website.

We are also accepting applications and nominations for the Gary E. Bird Horizon Award, which will be awarded at the conference. If you are a risk manager who has implemented an innovative construction risk management technique or you know one who has, please submit for the award. You'll learn more about it and how to submit or nominate someone from this page.

Thanks for subscribing to IRMI Update. Have a great day.

Jack

Jack P. Gibson
President
IRMI

Risk Tip

Consolidate Effective Dates and Choose Carefully—When your various insurance policies expire at different dates, it becomes very difficult to obtain competitive proposals with the intent to move your entire program to a new agent or insurer at one time. Also, there is much redundant effort providing updated underwriting data several times during the year. Furthermore, using different policy periods for primary and excess liability policies can result in coverage gaps if underlying aggregate limits are ever impaired or exhausted. For these reasons, it is optimal to arrange your program such that all policies expire on a limited number of carefully chosen dates. For example, you might choose one date for everything or one date for the property program and one for the liability program. Because they are such busy times for the insurance industry, avoid January 1 and July 1 if at all possible.

Source: Derived from one of the recommendations in 101 Ways To Cut Business Insurance Costs

Suggest a Risk Tip. Future issues of IRMI Update will include more risk tips from our readers. Send us a practical tip (less than 300 words) for identifying and managing risks, buying insurance, managing claims, or filling gaps in insurance coverages. We'll give you credit for your contribution.

New Expert Commentary

There are now 437 articles on IRMI.com, and many more are in production. Below you'll find summaries of some recent additions with links to the articles.

Dealing with a Difficult Claim—Large complex claims continue to challenge both risk managers and insurance representatives when working toward a quick and fair settlement. Dan Torpey offers some ideas on how to move the process along.
How Does an Extrinsic Contract Impact Additional Insured Coverage?—Joe Postel discusses the soundness of recent court decisions from around the nation involving additional insured disputes and contracts between customers and CGL policyholders.
Auditors and Risk Management—Many do not understand the role of auditors. Matthew Leitch resolves the confusion by explaining how they work, where their weaknesses are, and what they contribute.
Thinking Outside the Box—Peter Polstein provides some examples where insurance in its fundamental form wasn’t the answer to clients’ problems. Other more interesting methods helped to solve the risk problem.
Enhancing Your Financials—Today, surety underwriters are looking for more financial muscle relative to a given work program. Rolf Neuschaefer explains how the use of subordinated debt may be an effective way to secure needed surety credit.

IRMI Construction Risk Conference

Get a Surety Market Update at the Construction Risk Conference—The surety market has been nearly as difficult on contractors as the hard insurance market. To help you understand the problems the market has encountered and navigate the rough waters, we've invited a distinguished panel of surety executives to fill you in on what's going on. You can learn more about this panel and all the conference sessions on this web page.

Also, we are currently accepting online registrations, although we will not begin processing until August 1. To register, just complete the online registration form.

IRMI Products & Services

IRMI Launches New Personal Lines Pilot Newsletter —This no-cost monthly e-mail newsletter will keep you up to date on the latest news and developments affecting personal lines insurance. It will also offer personal risk management tips you can pass on to your customers. If you are an agent, underwriter, adjuster, or attorney who works with personal lines insurance, you will find this newsletter invaluable. If you work in commercial lines, please forward this information to your personal lines counterpart. The inaugural issue will be published in August. It's easy to sign up on this Web page.

New From IRMI

Contractors' Crisis Management Program Now Available—When a crisis occurs, it is important to respond quickly and effectively. Failure to do so will greatly exacerbate the immediate loss and result in other unfortunate—and perhaps more costly—consequences, such as a diminished corporate reputation. By planning your crisis response in advance, you can avoid the need to make all the important decisions on the fly, and the risk doing so entails. Janine Reid's highly acclaimed Crisis Management Plan provides tools for contractors to implement a crisis management plan and train employees on its use. Her plan is now available through IRMI.com at 15 percent off the regular price. This is a limited time offer, so act now! For more details or to order check this website.

Featured Expert Commentator

Jim Pocius has been writing on workers compensation law issues for IRMI.com since March 2000. He is a shareholder in the Scranton, Pennsylvania, office of Marshall, Dennehey, Warner, Coleman and Goggin, where his practice is dedicated to the full-time litigation of workers compensation, federal black lung, and employers liability claims. Mr. Pocius is a frequent speaker and author on these topics, including writing for IRMI Workers Comp: Coverage, Laws and Cost Containment. For more information on Mr. Pocius, go to following links to see his full biography and a list of his articles.

Your View—Are Insurance Certificates Necessary?

In IRMI Update 68, Jack Gibson wondered whether fighting for the modified or manuscript certificate is a waste of time. He asked readers whether this practice is worth the time and energy it requires to implement. We received many responses, some of which are reproduced below.

Too many risk managers push this type of thing "because they can" and it looks as if they are working hard and being diligent. But you are right; the fact is that all that effort produces little, if any, real value. Better to be reasonable, get the certificate done quickly (it is important), and move away from "administrivia" and on to more meaningful risk reduction issues.

—Rick Moscicki, Managing Principal, The Risk Consulting Group

I had to chuckle when I read your latest editorial, as I remember this as a topic from my underwriting days. As an underwriter and underwriting manager (many years ago), we used to receive these certificates with all of this elaborate language where it was obvious that someone had spent a fair amount of time writing. In those days (mid 80s to late 90s), we would simply send the certificate back to the agent or broker as unacceptable along with a note containing the following sentiment: "A certificate of insurance does NOT change the coverage provided under this policy. We are returning your certificate as unacceptable and ask that you resubmit a standard ACORD certificate containing standard language. If you have any special requests for other entities to be added as additional insureds, for waiver of subrogation language or any other policy amendments, please send it to us in the form of an endorsement request and we will consider modifying the policy to accommodate your request."

Here are the specific answers to your questions:

Have you ever seen a claim paid that would not have been paid except for a modified insurance certificate? No, I have not, although I have seen some funky decisions applied to insurance policies, so it always pays the underwriter to be as precise as possible with respect to coverage intent.

Do you think this practice is worth the time and energy it requires to implement? No, as I mentioned above, my belief is that a certificate does NOT change the policy contract. That being said, a company that accepts a certificate with language that suggests that the policy is covering something that the actual policy language does not support is setting themselves up for trouble. That is why we took the approach that we did. By not accepting certificates with strange language, the underwriter eliminates the possibility of ambiguity later.

To what extent will underwriters comply with these requests in the current market? Trained underwriters are still reasonable and will accommodate reasonable requests. I guess in the current marketplace there may be a shift in what is considered reasonable, but I still think underwriters are willing to try and accommodate an insured's request.

Do you really think insurers should enter into contracts separate and apart from insurance policies that may affect the coverage they are providing? No I do not. I think that the insurance contract should be the exclusive vehicle for communicating of all of the intended coverage. Adding extracontractual elements outside of the policy invites misinterpretation.

—Leslie J. Hawkes, PricewaterhouseCoopers, New York

I am an insurance agent, and we are continually hassling with insurance companies and general contractors about certificates. I totally agree with Jack's message. We spend untold hours trying to get insurance companies to do what generals want and with generals accepting what the insurance company is willing to do on certificates. In my 35 years in the business, I have never seen a claim paid on the basis of a certificate.

—Deb McCracken, Geny Insurance Agency, Inc., Nashville

As we grow older, we get more practical. I heartily concur with your new approach toward certificate administration. And, tight control of the certificate renewal process is a must.

—Mike Natale, Risk Manager, Metropolitan Washington Airports Authority, Washington DC

In my opinion, manuscript certificates are the bane of our industry. We see large prime contractors that have their particular manuscript certificates all the time. The scary part, even though there's question as to their enforceability (which, I'm told by some pretty sharp underwriters, varies between legal jurisdictions) is that the manuscript certificates often stipulate things that NO insurer will do. Frequently we see the wording that the liability poli(CIES), emphasis on plural is mine, are endorsed to add a list of additional insureds on a primary, non-contributory basis. Well, carriers don't endorse umbrellas in this fashion and they don't endorse auto liability policies like this. Or we see language that "any indemnitees required by contract" are additional insureds on a primary, non-contributory basis. Many carriers won't add architects/engineers this way, and if they do, they require specific language excluding professional services.

Point is: these manuscript certificates are hell for an agent concerned with E&O and proper representation of what the industry/agency contract will/won't allow.

—Ken de Looze, Anchor Insurance & Surety, Inc., Portland

I am glad to see IRMI advocating what we have long held among the agents as a best practice, i.e., do not modify the certificate of liability insurance. Admittedly, with endorsements added to the policy, such revisions can be acknowledged but overall, it's better to spend valuable time in the contractual phase than in the certificate phase. With your acknowledgement hopefully we may all have more of that precious commodity we call time.

—Bill Perkins, Instructor, Florida Association of Insurance Agents, Tallahassee, FL

I agree with you wholeheartedly. As an agent, I see countless hours wasted over certificate wording, certificate requests to use obsolete endorsements, modification of terms, etc. Every E&O seminar stresses that ACORD certificates should not be modified. They are complete for their intended purpose and the certificate should not be used as a means to attempt to change the conditions of the policies issued.

The real danger in modification lies with the manner in which certificates are handled now. Most carriers don't want to even see the certificate, thus many agencies issue the certificates according to the whims of the certificate holder, thus granting coverage under the certificate that is not given in the actual contract.

The risk to the agency is obvious. A claim occurs that isn't covered under the insurance contract, but is indicated as covered by the certificate. Is it reasonable to think the carrier is going to pay the claim? I think not. Even if they do, you can rest assured that they will come back against the agency.

—Gene Seago, Marketing Department, Merritt & McKenzie, Atlanta

I have been engaged in the insurance and risk management business for over 30 years. There are other reasons to avoid altering standard ACORD certificates of insurance. In New York State, the Superintendent of Insurance has advised all agents and brokers against changing the standard ACORD certificate with any modification. In fact, altering a standard certificate violates department rules. If a certificate is altered it may also represent a modification of the filed insurance policy language and should be filed with the department as an amendment of policy language. Making such changes, or using customized certificates, represents a huge E&O exposure for the agent or broker since the carrier is not bound by the terms put on the certificate by the agent or broker. Also, for the requesting party, it becomes a manuscripted terms issue and may reduce their rights against the carrier when it comes to policy interpretation.

—J. David Ferris, PhD, CPCU, ARM, President, P. W. Wood & Son, Inc., Ithaca, NY

The view from here is on the other side of the issue, the insurance company side. It's a pleasure to see that at least one risk manager agrees with us that the unmodified ACORD certificate is good enough for practical purposes. In just short of 35 years in the business, I've never seen or even heard of a claim where a modified certificate changed anything, although there have been many cases, in states where the certificate is treated as an endorsement to the policy, where the unmodified certificate has created coverage that otherwise wouldn't exist.

In the nail-'em-to-the-wall area, there are far too many lawyers writing up insurance specifications without adequate knowledge of the subject, causing a big waste of energy for both the insured and its insurer in fighting off the overblown requirements. We've also had particular problems with railroads, where they use the same contract form that applies to building a bridge for the line for buying lubricants, meaning a lot of things that aren't really needed under the circumstances are requested. In a lot of cases, the result is add-ons that seriously increase premiums.

—John Koehler, EMC Insurance Companies, Des Moines, IA

Thank you for this discussion. I have not seen coverage attach by virtue of a certificate of insurance. As a matter of fact, we no longer accept Certificates of Insurance.

—Jim Baldyga, Vice President of Underwriting, OHIC Insurance Company, Columbus, OH

Certificates are evidence of coverage only. You can put anything on them but the policy really is what the court reviews. Have I ever seen a claim paid as a result of an amended cert? Sure have. By the producer's E&O carrier on subrogation by the carrier.

When cert holders try to steal a free ride off the insured's policy, problems will ensue. They should because an insurance policy is a contract of adhesion, good faith, and between known parties. The cert holder is not a party to the agreement. Quit trying to use the cert to secure your risk. Bad idea! See WTC property fiasco if you have any remaining doubt.

—Bill Ford, CPCU, JD, CLU, CIC, ARM, AAI, Regional Manager, Alternative Risk, ProNational, Birmingham, AL

I don't believe fighting the standard ACORD certificate is of any value. It is certainly not, in my opinion, a good method of modifying policy coverage. While I have used a certificate to prove that a certain party did have coverage at a certain time and that the coverage included contractual liability and therefore provided my company coverage through contractual liability, I have never been successful in using a modified certificate to settle a claim favorably.

—Deborah Graham, Director of Risk & Insurance Management - North America, Allied Domecq plc, Randolph, MA

Unfortunately, some in our industry intentionally or carelessly misrepresent policy terms on a certificate of insurance, taking the position they (and the company) have no liability based on the wording "This certificate is issued as a matter of information only and confers no rights upon the certificate holder." If the issuer of the certificate is an agent of the company, the certificate might be considered evidence that the company, via the agent’s actions, has changed the policy terms, the certificate being evidence of the agreed upon endorsement (which has not yet been issued, but which will be attached to the policy and will follow). The distinction here is important—the certificate does not change the policy terms, but it is written evidence of an insurer's endorsement changing policy terms. This situation is common with certificates when the certificate shows the certificate holder has additional insured status, but the agent forgets to send a request to amend the policy to the insurer (who denies coverage exists for the additional insured).

For either an agent or broker, I believe the false representations on the certificate may give the certificate holder an action against the agent or broker directly for equitable estoppel—false representation of a material fact, known to be false by the agent (or negligent in not knowing the falsity), believed to be true by the certificate holder, the agent or broker knew the certificate holder would rely on the representations made in the certificate, and the certificate holder reasonably relied on the certificate’s representation to their detriment. Estoppel is not contractual in nature and therefore the disclaimer on the ACORD certificate probably will not be an effective defense; liability is being asserted against the agent or broker for their actions and not the insurance company for their obligations on the policy.

—Craig F. Stanovich, CPCU, CIC, AU, Principal & Consultant, Austin & Stanovich Risk Managers, LLC, Douglas, MA

While it isn't true with Bituminous, the prior 2 carriers I worked for, told their agents not to even bother sending in Certificates of Insurance, as they would just be deposited in the waste paper basket. They felt that a ruling made by a Michigan court made the paper they were printed on worthless. They advised their agents to not even send them in.

In addition, if I remember correctly, the Michigan insurance agents "Big I" also advised their members that they agreed with the court ruling and told them that if they issued a certificate, they should not change any conditions as it was only a certification of what the policy in effect reflected. They also advised them that since companies would not be keeping certificates, they would probably be liable under their E&O coverage if there was something put on the cert that was not on the policy. You may want to check into this further.

—Tom Wilkewitz, Senior Underwriter, Bituminous Insurance Group

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IRMI Update—Issue #69

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