Government & Legal Update

Certificates of Insurance: A Protracted Battle

Insurors’ Work on Certificates in Tennessee

Over a decade ago, Insurors sought help from the Tennessee Department of Commerce and Insurance (TDCI) in the form of an official “Bulletin,” issued by then-Commissioner Julie Mix McPeak, to formally declare that the issuance of inaccurate certificates of insurance (COI) was a violation of Tennessee’s Unfair Trade Practices and Unfair Claims Settlement Act of 2009. Tenn. Code Ann. §56-8-101 et. seq. The bulletin was issued by Commissioner McPeak on March 21, 2012 and stated, in part, “[a]ny attempt to amend, expand, or alter the terms of an underlying insurance policy through the use of [a] certificate of insurance will be considered a violation of the unfair trade practices act and could subject a producer’s license to disciplinary action by the Division.”

While a good first step, the 2012 bulletin is silent on third parties (e.g. corporate risk managers, attorneys, etc.) and the ever increasing pressure and demands inappropriately placed on agents in Tennessee. Thus, in 2020, Insurors worked with the General Assembly and TDCI to pass legislation to further address these issues. Tennessee’s law is fashioned after a model bill promoted by the National Conference of Insurance Legislators (NCOIL), itself which was based on a template developed by the Big “I”. The bill passed unanimously and was signed into law by Governor Bill Lee on March 20, 2020.

Although more than 30 states have adopted similar legislation, the dreaded COI issue continues to be a pain for agents in Tennessee and across the country. We wanted to use this space to recap the current state of the law and assure you that Insurors continues to look for ways to improve the agency experience with COIs.

A Refresher on Tennessee’s Certificate of Insurance Law

Tenn. Code Ann. §56-7-114 defines what a certificate of insurance (COI) is and outlines in state law that a COI does not amend, extend, or alter the coverage of the underlying insurance policy. The current law prohibits a person from

preparing, issuing, requesting, or requiring the issuance

of a COI that contains any false or misleading information concerning the underlying policy, or that purports to alter, amend, or extend the coverage provided by the underlying policy. It also prohibits altering or modifying a COI after its issuance. Furthermore, the law states that a COI cannot warrant that an insurance policy complies with the insurance or indemnification requirements of a contract.

The law applies to all COIs issued in connection with property or casualty insurance risks located in this state, regardless of where the policyholder, insurer, insurance producer, or person requesting or requiring the issuance of a certificate of insurance is located.

The law states that any notice of cancellation, nonrenewal, material change, or other notice requirements is governed by the terms of the underlying insurance policy, an endorsement to the policy, or state law, rather than a COI. i.e. Operative coverage and notice provisions are governed by the policy, not a COI.

Violations may result in any of the following actions by the Tennessee Department of Commerce and Insurance (TDCI):

• TDCI may examine and investigate the activities of any person that it reasonably believes engaged in, or is currently engaging in, an act or practice that is prohibited under this law. (This is where evidence of violations, as reported by producers to TDCI, can assist the department in enforcement matters.) • An order to cease and desist actions that constitute a violation of the law. • A civil penalty of up to $1,000 per violation.

Looking Ahead

Insurors continues to look for ways to improve the climate for agents with respect to COIs. Throughout this process, we’ve heard from many of you that the law is not having the impact we hoped, especially with regard to certificate

clearinghouses. We are currently surveying the laws in other states for meaningful ways Tennessee’s statute may be improved.

Additionally, we continue to have dialogue with the TDCI on ways Insurors and our members can help the department’s enforcement efforts and elevate the statute’s impact in dissuading illegal COI demands on agents. To that end, some recent feedback we have received from TDCI is that few, if any, formal and actionable complaints have been filed with the department. This is a critical and necessary step in the process and one within agents’ control. And although it may seem time consuming initially, think about the amount of time and resources you spend fighting over COIs with third parties and insureds over improper (or illegal) requests.

To that end, we are here to help you navigate that process.

Illegal COI demand? Document and report it to TDCI.

For questions about enforcement efforts related to certificates, or to file a complaint against a third party, reach out to the Fraud Section of the Tennessee Department of Commerce and Insurance by visiting their webpage (https:// www.tn.gov/commerce/insurance/consumer-resources/ fraud-investigation.html), call the complaint hotline at (615) 253-8841, or the toll-free number at (800) 792-7573, or send written complaints to:

Tennessee Department of Commerce and Insurance Insurance Division – Fraud Investigations 500 James Robertson Parkway, 6th Floor Nashville, Tennessee 37243-0575

As always, please keep us updated on any complaints or let us know if we can be helpful in your communications with TDCI, as we continue to work with the department on effective enforcement of (and ways we may improve) Tennessee’s COI law.

About the Author—Trey Moore is the government and legal consultant for Insurors. He operates Trey Moore Consulting in Nashville and formerly served as senior public policy counsel for one of Nashville’s largest law firms. Trey has over a decade of experience in representing clients before the Tennessee General Assembly and state government. u

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