CERTIFICATES—A RECURRING THEME?

Who’s in charge?

Issuing certificates is not for the faint of heart, nor is it for untrained, unlicensed, or overwhelmed agency servicing staff. … All commercial lines account managers should attend a high-level certificate seminar at least once a year.

By Mary M. Belka, CPCU, ARM, ARe, RPLU, CIC, CPIW

A major component of any insurance industry consultant’s practice is that of fielding the scenarios, questions, and challenges our clients and associates bring to our attention on a daily basis. The topics change with the times, yet there are some recurring themes. The most frequent questions we are asked to address are related to certificates of insurance; and recruiting, retaining, and training account managers. They are intertwined because of the need to have seasoned, knowledgeable account managers in place to handle the myriad complex certificate issues that agencies face. Certificates are also an important component of new business and renewal procedures.

This is a far-reaching topic; it is not possible to include all aspects that may apply in one short article. A week does not go by—and during some weeks, a day does not go by—without an agency raising some certificate of insurance (COI) concern or question. Certificates were originally created as a convenience—replacing the practice of obtaining signed, “authorized” copies of original policies from insurance carriers, to forward to third parties requesting proof of insurance. Since the mid-1990s, when lawsuits were first filed and won against agencies by third parties who requested certificates—and relied on information contained in them that exceeded or did not match the actual policy wording—certificates have become the bane of many agencies’ existence.

Bottom line, third parties continue to request wording that should not or cannot be provided. Some agencies persist in providing incorrect certificates, further fueling the belief among those requesting them that if they push hard enough, they can get what they want. Certificate and additional insured issues are a continual source of errors and omissions (E&O) claims against agencies.

Some agencies are unaware of recent precedents that makes it even more critical that certificates be issued properly to avoid expanding coverage by including language beyond that contained in the actual policy. The case of T-Mobile USA Inc. v. Selective Insurance Company of America (Washington State Supreme Court, October 2019) is fairly straightforward and enlightening. The Ninth Circuit Court of Appeals certified the issue back to the Washington State Supreme Court. Even though the certificate issued by
the agency contained disclaimers, the error on the
document, indicating T-Mobile USA, Inc., as an additional insured when this was in fact not the case, forced the insurance carrier to provide coverage.

Policy forms say it best

Some states have adopted the model law that, among other things, indicates it is fraudulent to change, or even to request changes to ACORD certificate forms because they are considered filed forms in these states. That’s been a help in eliminating inappropriate or inaccurate wording on certificates; however, it is surprising that even in these states, some agencies still struggle to educate their insureds and parties requesting certificates. Further complications can arise as agencies hire staff working remotely across multiple states, or have insureds operating in other states. Web-based sales bring potential challenges as agencies expand their reach; different rules may apply in different jurisdictions. Today, few agency staff members study applicable case law. Rough Notes magazine and its archives are a source of this information.

Account managers should attach applicable policy forms, when necessary, to indicate coverage. In some cases, it may be necessary to provide a copy of the policy, as in olden times, with the insured’s permission. These may not be accepted by the third party, particularly when dealing with organizations working on behalf of third parties to obtain certificates. Their staff members are trained to accept no substitutes for their requests, and they are not generally knowledgeable about insurance. There is nothing that describes the actual coverage better than the policy itself; restating policy language differently for any reason is never appropriate.

The amount of time account man-agers spend issuing and reissuing certificates with wording required by third parties is a major waste for agency staff. This is where some account managers succumb to the pressure of providing inappropriate wording; they may be pressured by producers to do so as well. We have seen situations (and potential E&O claims) where producers have issued certificates in order to satisfy inappropriate and sometimes fraudulent requests. It is critical to have strong procedures in place regarding certificate issuance.

A cautionary tale

A recent example of several troubling components illustrates how critical it is to have procedures in place—and to review them as the COI landscape evolves.

An agency received a binder for liability coverage for an insured through Lloyd’s, from a large E&S broker. The binder included wording from the E&S broker indicating that it is the responsibility of the issuing party (namely, the agency) to issue any COIs. The broker further indicated that they would not
check or review any COIs they received, and that they would destroy any COI copies upon receipt.

The broker is in essence, disavowing any responsibility—or knowledge—what-soever of any COIs that might be issued. They want any liability arising from certificate issuance to be placed firmly in the agency’s court. This wording creates a most difficult situation for the agency, as the agency cannot issue a COI because they are not appointed with Lloyd’s and cannot sign a COI as an “authorized representative.”

The broker further indicated that it was the responsibility of the agency to review the binder carefully and compare the coverage outlined in the binder against their request to identify any discrepancies or gaps in coverage. Again, the broker took no responsibility for any coverage that might be incorrect or missing.

The agency’s only recourse would be to provide a copy of the binder (and later the policy, once issued) with the insured’s express permission for the third party’s review and acceptance. The agency has to go “old school” to avoid accepting the most responsibility—without even being a party to any of the contracts in question.

In some cases, the E&S broker may provide express permission for an agency to issue COIs as an authorized representative on their behalf; however, the agency should require a signed hold harmless agreement with the broker before doing so, renewed annually, and forward a copy to the broker for their file. In this case, that was not even an option.

In short, it’s all on the agency—and then some.

This information begs several questions, not the least of which is that of having actual procedures in place, as well as the expertise and knowledge of account managers. Current harder market conditions will mean more E&S placements. Is your staff ready? “Processing” policies is not enough. Meeting your clients’ needs will require more knowledge and training.

• How knowledgeable is your staff about E&S brokers and policies in general?
• Are all binders and policies being checked by a qualified insurance professional who can ascertain that the correct coverage has been put into place as ordered?
• Are all E&S binders suspensed for receipt of policy?
• What is your agency’s procedure regarding COIs and E&S brokers?
• Will your E&S brokers issue COIs?
• Does your agency require that copies of any certificates issued (whether for standard carriers or E&S brokers with express permission to do so) be sent to the carrier(s) for their file, whether they want them or not?
• Are you proactively communicating with your insureds regarding additional insured coverage and certificate limitations?

There are several insurtech software products that can streamline certificate issuance. However, the agency is still responsible for making certain that these documents are set up properly and do not contain expanded or inappropriate wording. The agency should control the ability of the insured to add any wording. Appropriate endorsements should be attached to indicate coverage.

Issuing certificates is not for the faint of heart, nor is it for untrained, unlicensed, or overwhelmed agency servicing staff. And it is certainly not for those agencies who are not appointed with carriers providing the coverage. All commercial lines account managers should attend a high-level certificate seminar at least once a year. This is an area where your agency can differentiate itself just by understanding the applicable rules and keeping your clients aware of the facts and any changes that may occur.

Some of us have a dream that in a galaxy far, far away, policies live in a cloud where insureds can grant access to anyone they wish, to review coverage for contractual purposes. Think of what agencies could accomplish if they were relieved of this bloated and endless task! In the meantime, knowledge is power and saves precious time and effort.

The author

Mary M. Belka is owner and CEO of Eisenhart Consulting Group, Inc., providing management and operations consulting to the insurance industry. She also is an endorsed agency E&O auditor for Swiss Re/Westport. A graduate of the University of Nebraska, Mary holds the CPCU, ARM, ARe, RPLU, CIC, and CPIW designations.