IRMI Update—Issue #69
An E-mail Newsletter for Risk and Insurance Professionals
ISSN: 1530-7948
July 31, 2003
In This Issue
Colleague,
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 web site.
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
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,
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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.
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 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.
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
web site.
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.
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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