Top 5 Certificate of Insurance Questions

Over the past 20-plus years, I have answered many hundreds of questions about certificates of insurance (COIs). The first webinar I did on COIs sold out 1,000 connections and a second session had to be scheduled. About 7,000 people attended those two sessions. Hundreds more have attended other webinars and seminars on the subject over the past decade, perhaps as many as 10,000 people total. And STILL I get questions about COIs.

The purpose of this month’s column is to share what I believe are the five COI questions I’ve responded to most often. I haven’t kept a log, so this is just a gut feeling. I’ll save the most frequent and probably important question for last. When I say “certificate” or “COI,” I’m referring to the ACORD 25 liability certificate.

Should agents follow up with certificate holders on cancellations?

Most errors and omissions (E&O) experts agree that agents shouldn’t even follow up with insureds on cancellations, so why would an agent follow up with a certificate holder? Cancellation is a contractual right with certain obligations and, in the case of most policies, rights are limited to the parties in the contract — insured and insurer. It would be the rare policy that authorizes cancellation by the agent.

Depending on how one interprets various state COI laws, regulations, and insurance department directives, it may not be legal for an agent to provide notice of cancellation to a certificate holder. But, even if it’s legal, it’s not necessarily a good idea because it may create in the mind of the certificate holder that he or she has contractual rights under the policy. Anyone who makes a business decision to provide notice had better follow the Invariable Practice Rule of “One Way, All the Time, By Everyone.” If you provide notice to one, do you provide notice to all? How this is handled, including any exceptions, should be spelled out in the agency’s written procedures manual and enforced.

Should agents issue “blank” or “sample” certificates of insurance?

Easy answer: No. Most often, the insured requests one of these to cut the red tape and speed up issuance. In other words, the insured is likely going to be handing out the “blank” or “sample” COI to anyone willing to accept it.

Only the agency, not the insured, is authorized to issue a COI on behalf of the insurer. In addition, I’ve seen some insurer COI guidelines that specifically prohibit this practice.

Should agents send copies of certificates to insurers?

In the words of Double Deuce philosopher Dalton, “Opinions vary.” Some feel that, since the ACORD 25 no longer provides any explicit notice of cancellation, that this practice is no longer necessary. Perhaps, but that doesn’t mean it’s not a good idea.

Some non-ISO automatic additional insured endorsements or policy provisions are triggered by the issuance of a COI and such status is not granted without notice to the insurer. Do you represent insurers with AI endorsements like this? If so, do you know which ones? An invariable practice of sending COIs to all insurers means you don’t have to remember who’s who.

But there are at least two better reasons for copying insurers on COIs. First, insurers need to see what their agents are saying on COIs. I’ve seen statements on COIs that arguably misrepresent policy terms and create liabilities for the insurer, insured, and agent. Insurers should at least engage in quality control (QC) sampling to minimize this exposure and educate the agency force.

Second, sometimes it is not easy to determine where or when a COI error occurred. I’ve seen court cases where insurers attempted to absolve themselves of any liability by asserting that they never saw the COI. Two cases that come to mind are Marlin v. Wetzel Country Board of Education, 569 S.E.2d 462 (WV Ct. App., 2002) and Erie Insurance Group v. National Grange Mutual Ins. Co. (NY Sup. Ct., 2009).

What policy limits can or should an agent show on a certificate?

Your insured has a $2 million per occurrence commercial general liability (CGL) limit and enters into a contract that only requires a $1 million limit. The insured only wants you to show $1 million on the COI. Or the insurance requirement in a contract is $2 million and the insured meets that with a $1 million CGL policy and a $5 million umbrella or excess policy, of course, only wanting you to show $1 million as the excess limit.

The ACORD Forms Instruction Guide for the ACORD 25 says, “Enter limit: The general liability, each occurrence limit amount.”

In other words, you show the actual policy limit even if it is greater than the minimum contract requirement. Remember, a COI is a representation of the insurance contract, not the contract with a third party. Nor does it represent only what is available by endorsement to an additional insured or to another party under the contractual liability coverage. Besides, the indemnity agreement in the third-party contract is likely unlimited, so those “extra” limits might be attached at some point.

What can or should an agent enter in the “Description of Operations” field?

Aside from E&O claims based on the agent’s failure to procure the additional insured status indicated on the COI, this field gets agents into trouble more often than just about any COI activity.

Do not put anything in this field not prescribed by the ACORD Forms Instruction Guide (FIG). Incorporate the FIG into your written procedures manual and follow its instructions.

The best advice I can give you is, whenever possible, don’t enter anything into this field. But, if you must, be wary of language like “[Entity] IS an additional insured as per construction contract.” I’d need an entire column to explain that one. Be wary what you say and how you say it.

All of that being said, I understand the pressure sometimes placed on you to use certain language. Doing so is a business decision.

You can put anything you want on the COI as long as it’s not patently illegal, doesn’t misrepresent the terms of the policy, and doesn’t violate your agency/company agreement or related documents.

Again, just be mindful of what you say and how you say it as it might be interpreted by the certificate holder and gauged against your E&O policy limit and deductible.