IRMI Update
Risk Management & Insurance
Commentary, Tips, and Tactics
July 14, 2010 | Issue 231 | ISSN: 1530-7948
In This Issue
Colleague,
What value is a certificate of insurance, anyway? It is common to hear risk
professionals proclaim them to be "worthless" due to all the disclaimers that
the standard forms include to prevent the certificate from overriding the actual
policy language (some risk managers I know call these disclaimers "weasel words").
IRMI Research Analyst Rich Scislowski has spent the last few months reading
all the relevant caselaw, insurance regulations, and literature as he considered
the issues surrounding this less than perfect approach to documenting compliance
with requirements to procure insurance. His full report and conclusions regarding
the legal standing, use and value of certificates will be included in the next
supplement to
Contractual Risk Transfer.
As part of the project, I asked him to come to a conclusion as to whether
or not certificates provided on standard forms (e.g., ACORD or ISO) have any
value to the receiving party. He developed a list of 10 ways in which they are
valuable even though they include disclaimers that prevent the certificate's
pronouncements from binding the insurer. Three of the 10 benefits are:
- Having a certificate makes it easy to identify the insurers, policy
numbers, etc., if a claim arises.
- Issuance of a certificate of insurance is sometimes held to establish
long-arm jurisdiction in the forum state. This means that, if a certificate
is issued by an out-of-state broker or insurer, the likelihood that the
holder could file suit against them in local courts, rather than in out-of-state
courts, is increased.
- Obtaining certificates reinforces commitment to the contract insurance
requirements. Caselaw shows that not demanding a certificate can lead a
court to conclude that the upstream party has waived the downstream party's
obligation to procure the required insurance.
So what additional benefits do you believe are provided by accepting insurance
certificates on standard forms as proof of insurance? Assuming that this is
the best you can get, is it worth the effort?
[See reader responses].
On another note, I've started preparing for a panel I will be moderating
at the IRMI Construction Risk
Conference, and I need your help with it.
Insurance Underwriter
Perspectives and Prognostications will feature the leaders of the construction
units for five of the most important markets writing contractors and OCIPs:
ACE, Chartis, The Hartford, Liberty Mutual, and Zurich. We'll be discussing
a wide range of topics, and I'd appreciate your suggestions on what they should
be. To share your ideas, just log into the
IRMI Group on LinkedIn (or the
CRIS Group) and add to the discussion.
All the best,
Jack
Jack P. Gibson, CPCU, CRIS, ARM
President
International Risk Management Institute, Inc.
Risk Tip
Tips for Dealing with the New Insurance Certificate Forms
Late 2009/early 2010, ACORD introduced new certificate of insurance forms
with an effective date of December 2009. The new forms do not contain the pledge
of previous forms that the insurer will "endeavor to mail __ days' written notice
to the certificate holder." They simply state that "... should any of the above
described policies be cancelled before the expiration date thereof, notice will
be delivered in accordance with the policy provisions."
Below is a summary of how standard policy notice provisions operate. State
laws regarding cancellation sometimes require that the length of the notice
be altered somewhat, but they do not generally affect who must be given notice.
-
Only the "first Named Insured" of most types of liability policies will
be notified of cancellation or intent not to renew.
-
Additional Insureds under liability policies will receive no notice whatsoever.
-
Mortgage holders and loss payees on property policies will be notified
10 days before the insurer cancels for nonpayment, 30 days before it cancels
for any other reason, and 10 days before it nonrenews the policy.
-
No one will be notified if the first Named Insured (rather than the insurer)
cancels or nonrenews an ISO policy.
This, of course, presents problems for the contracting parties, both for
those who want to make sure that insurance is in place and for those who need
to show they are complying with the insurance provisions of the contract. It
also places agents and brokers in the very difficult position of being expected
to provide a service that they are not able to perform.
Unfortunately, there are no perfect solutions to these problems, but here
are a few thoughts for mitigating them to some extent:
-
Certificate holders might request that the insured vendor, lessor, or
contractor ask its insurer to issue an endorsement providing notice of cancellation
to the certificate holder. It is unlikely that all insurers will be willing
to comply, however.
-
Certificate holders could modify their contract with the insured to require
that the insured give them immediate notice if the policy is canceled or
nonrenewed. This has the obvious drawback of depending on the very party
who is nonperforming to report the situation.
-
For a variety of legal, risk management, and business reasons, agents
and brokers should not generally sign manuscript or ACORD certificates that
have been modified to include a required notice of cancellation to the certificate
holder.
In this age of ever improving technology, it is a shame that the insurance
industry cannot or will not develop a workable solution that meets the legitimate
business needs of insureds, certificate holders, and agents/brokers.
By: Brent Winans, CPCU, ARM, Vice President,
Risk Management Services,
Plastridge Agency, Inc.
Delray Beach, FL
GET PUBLISHED IN IRMI
UPDATE: 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 acknowledge your contribution as we did for Brent.
Submit an IRMI Update risk
tip.
What's New in Your IRMI
Library
Professional Liability Claims: The Risk Professional's Role
Claims submitted under directors and officers (D&O), errors and omissions
(E&O), and professional liability policies often involve potentially significant
losses. Protection of the policyholder’s interests thus becomes a priority.
Because of the increase in the past few years of claims submitted under such
policies, it is critical that the broker, agent, or risk manager take steps
to assure that any claim is properly and timely submitted and thoroughly handled.
The June 2010 issue of
The Risk Report discusses how a risk manager, broker, or agent can assist
in the claims process. It focuses on critical missteps that are frequently made
and how you can avoid them. If you buy or sell management, professional, or
E&O liability insurance and subscribe to The Risk Report, be sure to review
the checklist of actions to take developed by the experienced claims attorney
who wrote this report
[Sage/ReferenceConnect or
IRMI Online].
For summaries of other new and updated information in your IRMI library,
go to What's New on IRMI Online or
What's New in SilverPlume Sage.
Recent Articles on IRMI.com
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There are 1,001+ risk management and insurance articles on IRMI.com. Below
you'll find summaries of some recent additions with links to the articles.
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