IRMI Update—Issue #68
An E-mail Newsletter for Risk and Insurance Professionals
July 15, 2003
In This Issue
One of the technical topics that I have focused on throughout my career is
contractual risk transfer. In my early years as a consultant, I advocated a
"nail them to the wall" approach to insurance requirements and indemnity clauses.
One of the techniques we used was to require either a manuscript certificate
of insurance or significant modifications to the ACORD certificate intended
to impose many obligations on the issuing insurer, such as a requirement to
provide notice of cancellation.
As I thought more about this practice and observed the huge amounts of time
and energy expended by contracting parties and their agents/brokers and underwriters
arguing about certificates, I changed my mind about this approach. I think the
time and energy are better spent on other activities. Now, I advocate simply
accepting a standard ACORD form with—if additional insured (AI) status is required
in the contract—the applicable AI endorsement attached. Of course, I also recommend
a good follow-up system for obtaining new certificates after policies expire.
Think about this: for a modification of the cancellation clause in a certificate
of insurance to pay off, all the following must happen:
- The insurer must cancel the policy mid-term.
- The insurer must fail to provide notice to certificate holders.
- There must be a claim after cancellation that would be covered by the
- The claim must be made against the certificate holder.
- The certificate holder must get a court of law to enforce the terms
of the modified certificate and require the insurer to pay.
It is so unlikely that all of these events will occur that I think fighting
for the modified or manuscript certificate is a waste of time. Your resources
are better spent on a risk control program that will keep the accident from
happening in the first place!
Of course, I know that many people advocate fighting for modified or manuscript
certificates of insurance. Nevertheless, no one has ever been able to tell me
that they've actually seen a situation where a modified certificate of insurance
resulted in a claim being covered that otherwise would not have been. There
are more than 28,000 readers of this newsletter, and I wonder if any reader
Have you ever seen a claim paid that would not have been paid except for
a modified insurance certificate? Do you think this practice is worth the time
and energy it requires to implement? To what extent will underwriters comply
with these requests in the current market? Do you really think insurers should
enter into contracts separate and apart from insurance policies that may affect
the coverage they are providing? [See reader comments.]
The second Captive Insurance Solutions for the Middle Market seminar is being
held today. We have one more scheduled for this year: Orlando on August 20 and
21. If you are thinking about starting or participating in a captive, you should
Just last week we posted the agenda for the 23rd IRMI Construction Risk Conference on our website,
and we are now taking registrations
We hope to see you at one or both of these programs.
Have a great day.
Jack P. Gibson
Design Professionals—Be Wary of Certifications—Any
request for a certification should be carefully examined, since a certification
is an assurance by the design professional of the situation in question. Such
a statement by the design professional can create immeasurable and unrealistic
expectations, give rights to parties that do not have a legal relationship with
the design professional, and create major insurability issues.
If a certification is required by contract, it should clearly differentiate
between known facts and professional opinions. Certifications should be:
- Based on contractual services.
- Identified as to purpose.
- Indicated as being at a specific time and for a specific entity.
- Limited to a statement of facts known by the design professional, or
clearly identified as an expression of professional opinion by including
a statement that it is based on professional knowledge and information.
If a certification form is issued for the benefit of another party, such
as to a lending institution, the design professional should be sure that the
terms are consistent with contractual obligations. The certification should
not require an assumption of responsibility for another party, create guarantees
or express warranties, or create inequitable or uninsurable liability exposures
for the design professional.
Improper certification language can result in potentially serious and often
uninsured exposures. If the certification does not solely state a fact known
to be true by the design professional, qualifying language must be used. State
that the certification is "to the best of my knowledge, information and belief,"
or simply identify the certification as a "professional opinion." Identifying
the certification as being made at a specific point in time based on specific
information available provides a reasonable expectation of the true value of
By: Joseph H. Jones, Jr.
Risk Management Department
Victor O. Schinnerer & Co., Inc.
Chevy Chase, MD
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.
There are now 432 articles on IRMI.com, and many more are in production.
Below you'll find summaries of some recent additions with links to the articles.
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 next month. It's easy to sign up on this Web page.
Insurance Certificate Tracking Programs—IRMI Research Analyst Ann Hickman spent the month
of June investigating the various available Internet and software systems for
tracking certificates of insurance. Her report covers seven different vendors’
systems. If you subscribe to
Contractual Risk Transfer (supplement 30) or
Construction Risk Management (supplement 72) watch for Ann's report coming to your desk soon.
Miccolis is a principal with the financial planning/investment management
firm Brinton Eaton Associates, Inc. For nearly 25 years, he served as a risk
management consultant and consulting actuary with Tillinghast-Towers Perrin,
becoming a principal of the firm in 1987. Prior to his retirement from Tillinghast
in June 2003, Mr. Miccolis led the firm's global enterprise risk management
(ERM) consulting activities. He has written on ERM issues for IRMI.com since
May 2000, explaining not only the concepts but their application. A link to
his latest article on ERM implementation is provided above. Mr. Miccolis is
a Fellow of the Casualty Actuarial Society and a Member of the American Academy
of Actuaries. He also holds the Chartered Financial Analyst designation from
the Association of Investment Management and Research. For more information
on Mr. Miccolis, go to following links to see his full biography and a list of his
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