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CERTIFICATES OF INSURANCE: FAQS AND ANSWERS
Certificates of insurance (COIs) account for more headaches at the agency level than just about any other issue. Because COIs create so much angst, the Big “I" Virtual University regularly hosts webinars about them.
Here are the answers to many of the frequently asked questions:
Q: Once you have reviewed the request and executed the COI, how do you advise your insured on what can and cannot be done regarding the insurance requirements held within the specific contract?
A: You can only consult on the insurance requirements in the contract. When you get a contract to review—hopefully before it's signed—you should schedule a meeting with your insured to lay out what is in the contract and what can and cannot be done from an insurance standpoint. Some requirements can be met by endorsement, some can't regardless of what you do. Your job is to explain to the insured what is available and let them make the business decision.
Q: What are the policy aggregate, per project and per location checkboxes in the general liability section of the certificate?
A: The policy aggregate is the standard policy aggregates based on the coverage. Per project and per location aggregates are triggered by the attachment of endorsements. If the CG 25 03 Designated Construction Projects General Aggregate Limit is attached, the general aggregate applies per listed project. Some carriers use a “blanket" description. For example: “All construction projects undertaken by the named insured". This endorsement is an ongoing operations limits endorsement.
If the CG 25 04 Designated Locations General Aggregate Limit is attached, the general aggregate limit applies to each insured location. These are locations that are owned by, leased or rented to the insured but are not locations at which the insured is working. This endorsement is a premises liability endorsement.
Q: If a policy is pending cancellation due to non-payment, but the certificate is requested before the cancellation date, should you still issue the certificate while in pending status?
A: Technically, you can because a COI is a snapshot of coverage in effect on that day but it creates a distinct problem for you on a couple of fronts.
First, do you call the insured to discuss the pending cancellation? If you do, you may have created another problem for the agency if you don't call all insureds with pending cancellation.
Second, if you issue a COI without a warning to the holder, are you guilty of creating a detrimental reliance? Because the COI is a representation of the policy in effect on the date it is issued, it seems acceptable and even required to note in the Description of Operations that cancellation is pending effective MM/DD/YY.
Q: If an insured has a blanket additional insured endorsement, do we still need to send the company the certificate holder's information to list them on the policy as an additional insured?
A: There isn't a “blanket" additional insured endorsement. ISO promulgated two “automatic" additional insured endorsements: CG 20 33 and CG 20 38. Nevertheless, if the party requesting additional insured status is included in the grant of protection offered by the automatic additional insured endorsement, you shouldn't need to send the information to the carrier.
However, some additional insureds want to see their name in lights and ask to be specifically listed. If this is the case, use the CG 20 10 or proprietary equivalent and specifically list that additional insured. If the underwriter understands the reason, they may allow it.
Keep the key difference between these forms in mind. The CG 20 33 requires privity of contract. Only the party on page one of the contract is granted additional insured status. Conversely, the CG 20 38 grants additional insured status to any party required by the contract to be extended additional insured status.
Q: How do we cancel a COI?
A: COIs don't have to be cancelled because they are snapshots of coverage on the day the COI is issued. However, if you have made it a regular practice of issuing updated COIs when a policy cancels, you must continue that practice and issue a new COI with updated information.
Q: What ACORD version should be used? Our agency management system allows for three different options. Should the newest version always be used? Some like the wording of the older versions and think we should use them. What's your opinion and why?
A: That's an interesting question, but more from the point that some folks prefer the older versions. I guess my question in response to your question is: Why is the older version preferred by some?
In looking at the changes to the ACORD 25 over the last few editions, it seems to me each change has been for the benefit of the agent. The current version does the best job explaining the intent and purpose of the COI.
Also, some states don't allow the use of an older form when a new one is filed and approved. Check with your state to see if you have options for using older forms.
Q: In regard to eroding aggregate limits, what do you recommend for open claim reserves?
A: Claim reserves are just estimations made by the adjuster. Basically, for COI purposes, ignore them. Nothing has been paid and thus no limits have been reduced.
Q: We are beginning to receive requests and requirements from certificate management companies for copies of the insurance declaration page and even the entire policy. This does not seem like a request with which we should comply and seems to border on breach of client confidentiality. What do you think?
A: Because the release of an entire policy may potentially violate privacy laws, you must get the insured's permission. I would recommend that permission be obtained in writing and kept on file.
Tell the certificate company that the policy is not your information to give. And remember, the policy is a contract between the insured and the insurance carrier—the agency is not a party to the contract. Only the insured can give permission to provide the policy.
