CPCU speaker describes what to watch out for with Certificates of Insurance

Certificates of Insurance: The Second Most Dangerous Piece of Paper,” including specifics about various insurance contract terms and provisions, and what to do and not to do with certificates of insurance were discussed by Bill Perkins, an instructor for the Florida Association of Insurance Agents during the January meeting of the Florida SunCoast Chapter of Chartered Property and Casualty Underwriters in Tampa, Fla.

CPCU invited insurance industry members, contractors, bankers and government officials to the educational event which drew a record turnout.

Key points touched on by Perkins were:

• A certificate only reflects coverage found in the policy. A certificate can not change a policy. A modification to the certificate, even with company approval, is meaningless unless an endorsement is issued by the carrier to reflect the detail found in the certificate.

• A certificate is for informational purposes only and confers no rights to the certificate holder.

• Caution is necessary when using a non-ACORD form. If using a proprietary certificate or one that is modeled on ACORD but modified by the certificate holder for use by the agent, careful attention should be used to determine if unique provisions have been added or if limitations have been removed.

• Agents and their staff must be properly trained on how to complete ACORD forms by using the instructions provided by ACORD with each of its forms.

• Clients must be informed of contractual requirements that may be counter to insurance provisions. Careful reading of insurance provisions and consultation with the agent before the contract is signed is recommended as best practice.

Perkins said FAIA has crafted language for the spring session of the Florida Legislature designed to provide some statutory basis for restricting the practice of some certificate holders who after receipt of a certificate of insurance, permit work to be done or materials delivered and then refuse payment for these services after it is determined by the certificate holder that the original certificate is unacceptable.

“If a certificate of insurance is issued to a subcontractor and he gives it to someone else who accepts it and does not question its compliance, then according to FAIA’s proposal the work or material delivered would be the financial obligation of the contractor or third party,” Perkins said.

Perkins said there are protections build into the legislation for certificate holders in cases involving noncompliance, fraud, as well as providing a three-day review period.

Perkins said FAIA’s provision would clearly establish who has liability if a certificate of insurance is given to a contractor or sub-contractor.

Perkins explained that if a client fails to meet these requirements he will be prohibited from working until he is in compliance.

“If you give the certificate of liability insurance to someone and if they look at it and say you are not in compliance, you can not work on the job,” he said. “That is a reasonable action to take.”

Perkins described instances in which the client performs work and in the 11th hour the certificate holder scrutinizes the document and learns the certificate is not in compliance.

“Because it is not in compliance, they are going to withhold payment under the contract and their requirement might be things like, an additional insureds endorsement under workers’ compensation, which is not available,” Perkins explained. “An agent will be unable to provide contractual requirements, but the contractor is still contractually responsible,” Perkins said. “The agent comes back and says we have done everything we can do to help you, but we can not provide this. That does not mean that because it can not be provided by the agent that you as a client aren’t still bound by those provisions, and that’s why you have
to go back and read the contract.”

Perkins said the worst-case scenario occurs when an agent amends the certificate of insurance without the corresponding changes to the policy.

“I have seen many clients who have gone to their agent and said, ‘Here is a certificate from this vendor that I have to fulfill,’ and this vendor has put together a wish-list of what they want covered,” Perkins explained. “This may in fact be their own form, they take ACORD and electronically massage it so it looks like their own.

“A word to the wise, I have contacted ACORD, and I have it in writing that they will enforce their copyright if that is found out because manipulation of that document is illegal without direct written permission of the drafter and ACORD,” Perkins cautioned.

He said someone who creates an “ACORD-wanna be” on their own software system is violating ACORD’s copyright and they will pursue it if necessary.

Perkins said sometimes a certificate holder wants to have a lengthy additional insured described with all divisions, subsidiaries, partnerships, sole shareholders, successors, assigns down to their first-born and last-born.

“Insurance companies are saying, ‘No, we are not going to insure everyone,'” Perkins said. “‘We are going to be very finite about who we are going to provide as an additional insurer, you have to tell us who they are.'”

Modification requests

How many times have you seen modification requests? Perkins asked.

“Strike it out, eliminate it,” Perkins advised. “Doing that gives the certificate holder the feeling that if there is a cancellation of that policy prior to expiration, we are going to know about it.

“When you think of certificates of insurance I want you think of a mirror,” Perkins said.

Unless the policy is changed, making changes on the certificate will not change the policy or accomplish anything-the carrier has to agree to change the policy, which can be problematic.”

Perkins said that such a cancellation
provision reflects an antiquated business practice.

“Even if we did abolish this it would not change the insurance policy. It may be a legacy of days gone by but does not have an impact on the policy it reflects,” Perkins explained. “What the certificate holder wants is a heads up. If this policy I want verified is going to cancel prior to expiration, I want to know about it.

“That is a fair business reality, but the certificate of insurance won’t do it. It goes back to the contract, that business agreement. We can talk about liquidated damages, we can talk about a breach of contract agreement, those are stipulations, but there isn’t a means by which a certificate holder can have that heads up from the company, unless the company agrees to do it.”

Bill Perkins, an instructor for the Florida Association of Insurance Agents talks about certificates of Insurance to the Florida SunCoast Chapter of Chartered Property and Casualty Underwriters.

Susan Granata, CPCU president, gave out a door prize after the presentation. She gave away a copy of “Designated for Success,” written by Don Hurzeler of Zurich Insurance, the guest speaker at the group’s February meeting.

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