It never ceases to amaze coverage lawyers the risk policyholders take by relying on Certificates of Insurance as the sole source of evidence that the other party to a contract has required insurance. Even riskier are those who rely upon those pieces of paper as evidence that someone is an Additional Insured.
Black’s Law Dictionary defines a Certificate of Insurance as a “[d]ocument evidencing fact that an insurance policy has been written and includes a statement of the coverage in the policy in general terms.” But for those wanting to be added as an Additional Insured, the certificate is almost always meaningless without the actual insurance policy being endorsed. And that is where many companies run into trouble.
For some reason, many in the business community believe that Certificates of Insurance are ironclad proof that another entity either has the purported insurance coverage, or worse, has added the company as an Additional Insured. Many lawyers, and a number of courts, will tell you that these certificates are not even worth the paper on which they are printed.
The reason for the danger is that when there is a conflict or discrepancy between a certificate and the actual policy, the latter controls. Remember, the policy can be changed without any consent from the certificate holder. Generally, these documents are mere evidence of the insurance coverage the policyholder has at the very moment the certificate is issued. Insurance companies almost universally do not issue these certificates, and many times do not know they have been issued. If the insurance is cancelled the next day, the certificate is meaningless. Even more dangerous are companies that rely upon these documents as proof that they have been added as an Additional Insured to another's insurance policy. The standard ACORD form states that the certificate cannot extend or alter the coverage.
The normal procedure requires the broker to submit a request to the insurer to add an entity as an Additional Insured, which then endorses the policy. Without the endorsement, the chances of being an Additional Insured are slim, regardless of what your contract may require or what the certificate may say. In short, the only safe thing is to demand to see the policy and endorsement.
There are many ways a company can prevent the risk through proper drafting of contracts and the requisite level of follow up.
First, the entity being added as an Additional Insured should not rely upon the certificate as the sole source of evidence. One should demand to see the endorsement issued by the insurer. If the broker issues the certificate saying a company is an Additional Insured, but he fails to have the policy endorsed, it is very likely that the company is not an Additional Insured and the certificate is not going to convince the insurer otherwise.
Contract language requiring an Additional Insured status should be clear. The careful company negotiates the level of insurance coverage required, includes a provision that the endorsement (or even whole policy) must be provided — not just a certificate, and does not try to claim indemnity provisions for claims that insurance will not cover. An ounce of prevention and some legal fees is a small price to pay to prevent a costly insurance coverage fight after the loss and your only evidence is the Certificate of Insurance.
Lastly, a program should be put in place for someone in the company to track Certificates of Insurance, or outsource that function. When a project is ongoing past the expiration date of insurance as noted on the certificate, someone needs to follow up to ensure that the insurance is renewed and your company is again added as an Additional Insured on the policy.
Examples of wrongful reliance of a Certificate of Insurance
To put this issue in context, consider the following example from the construction industry.
A hospital is interested in building a new state-of-the-art facility. It retains a design-build firm to handle development of the plans and serve as the general contractor. The GC puts out for bid certain portions of the construction. In one instance, a subcontractor is selected to install a retaining wall. The GC requires a certain policy limit (ultimately too small for the size of the project) and insists on being named an Additional Insured on the subcontractor's policy. All the GC requires from the subcontractor is a standard ACORD Certificate of Insurance, which it ultimately receives from the subcontractor's broker. All seems fine and the work begins.
Near completion of the project, someone notices that the retaining wall is failing, which is leading to the hospital’s south wall pulling away from the building. The owner demands that things be fixed and, subsequently, the GC demands that the subcontractor fix everything. The problem is that the subcontractor is now out of business. The GC is an Additional Insured, right?
Wrong. When it files a claim with the insurer, the response is that the GC is not an Additional Insured because the policy was never endorsed. In fact, the insurer claims to have no knowledge of the GC being added or any attempt to add.
But the GC has a Certificate of Insurance that clearly states it is an Additional Insured on the subcontractor's policy — the problem is that the certificate does not alter coverage. The certificate is worthless as far as the insurer is concerned and meaningless.
The insurance broker for the subcontractor failed to notify the insurer even though it issued the certificate. Where does that leave the certificate holder? The only hope for a recovery at this point may be a claim against the broker that issued the incorrect or fraudulent certificate if that is the case.
My broker made me do it
A company may be able to bring negligence, negligent misrepresentation, and/or unfair and deceptive trade practices claims against the issuing broker. Of course, expect a fight based on the assertion that the broker did not owe your business any type of duty. Claims against a broker or agent are difficult to say the least.
As noted in one leading treatise, “Only a strong and specific showing of error by an agent or broker that adversely affects one to whom a duty is owed can support a negligence claim and damages against the intermediary.” Such a situation can be avoided with proper planning, policies and follow-up to ensure the Certificate of Insurance really means what it says instead of taking a gamble.
Reliance on certificates increases the risk for businesses that make it their practice to routinely rely on the certificate as the sole evidence of insurance in place, the scope of coverage, and Additional Insured status.
As one U.S. District Court stated in DTG Operations Inc. v. Manheim Remarketing Inc., “The ‘certificate of liability insurance’ is not a part of the insurance policy and clearly disclaims that it does not confer any ‘rights upon the certificate holder’ or otherwise 'amend, extend, or alter the coverage' provided by the policy.” And therein lies the problem relying on a Certificate of Insurance without also obtaining the actual insurance policy and/or endorsement to confirm how your company has been added as an Additional Insured.
Yes, it is a headache to obtain the insurance policy's provisions and endorsement from the other side as part of the contract negotiation. Companies hate to be bothered, and it’s just easier to hand over a Certificate of Insurance from their broker who issues them at will.
However, in most instances the certificate is worthless and the company wanting to verify and confirm that it is truly an Additional Insured on another’s policy must obtain the relevant insurance policy's provisions and the endorsement actually adding the entity onto the policy.