 |
 |
 |
|
Risk Management Producers: Beware of drawbacks to certificates For contractors liability, certified copy of policy is preferred evidence of coverage By Donald S. Malecki, CPCU A certified copy of the policy or policies, not an insurance certificate, will soon be the recommended document for confirming what liability coverages are being maintained by contractors. This is a strong statement and one that most assuredly will generate negative responses from many producers, underwriters and insureds. Producers, however, should not be surprised to note this major change in what will be demanded by persons or organizations seeking confirmation of coverages maintained by contractors. Certificates can no longer be relied on to confirm coverages because they sometimes confirm additional insured status that does not otherwise exist. Also, for construction contractors, far too many exclusions and limitations apply that cannot be reflected on certificates. At first, it might appear that large numbers of authorized representatives are making statements on certificates about coverages that do not exist. This is because what happens to certificate holders who rely on these documents to their detriment usually leads to litigation. Compared to the thousands of certificates issued daily, however, the problems involve only a few who, for whatever reason, make such false statements. In fact, these problems have not arisen in all states and, to the extent there has been litigation, some of those careless few have found some states to be safe havens. Others have been less fortunate, such as producers in Georgia and West Virginia. In the Georgia case of Sumitomo Marine & Fire Insurance Co. of America v. Southern Guaranty Insurance Co. and Columbia National Insurance Co., 337 F. Supp. 2d 1339 (U.S. D. C. No. Dist. Georgia 2004), the developer/owner of residential housing hired contractors and required additional insured coverage. The agent for Southern Guaranty and Columbia National issued certificates confirming that the owner/developer was an additional insured as interests may appear, even though the policies contained no endorsements to that effect. When the owner/developer was sued by some home owners, it was denied additional insured coverage. The insurer of the developer/owner provided coverage and then brought suit against the contractors’ insurers. The court ruled that with reliance on the certificates to its detriment, the owner/developer was to be defended and indemnified for damages paid. A similar situation existed in the West Virginia case of Marlin v. Wetzel County Board of Education, 569 S.E. 2d 462 (Sup.Ct. of App. West Virginia 2002). The board of education thought it was an additional insured because its certificate confirmed that status, but the policy was not endorsed to that effect. The agent’s misrepresentation in the certificate stating that the board was an additional insured prevented the insurer from denying coverage. Crux of the problem Proving detrimental reliance is not always easy, even when it can be shown that a certificate holder relied on a certificate that was thought to have reflected the coverages sought. In fact, in one recent case, the court went so far as to say that because a certificate does not amend, extend or alter the coverages provided by the policies, the certificate holder could not have reasonably relied on alleged misrepresentations. In the words of the court, the certificate holder should have requested a copy of the policy. Anyone who has been in the insurance business for any period of time learns quickly that requesting and obtaining a certified copy of an insurance policy is an exercise in futility. Even if it were possible to obtain such a policy, it is likely to take a long time. In light of the case of Alabama Electric Cooperative, Inc., et al. v. Bailey’s Construction Company, Inc., 950 So.2d 280 (Sup. Ct. Alabama 2006), and others like it, however, demanding a certified copy of the policy and withholding any award of contracts until the policy is produced may be the only way to prevent litigation and an adverse, costly decision. In this particular case, the landowner and certificate holder did not insert the additional insured requirement in its contract. The agreement with the contractor was an oral one. The contractor obviously agreed to the additional insured coverage, as the certificate issued by its broker reflected that status. What might have been especially annoying to the landowner was the testimony of the contractor’s broker. She said that she would not have given the landowner a copy of her named insured’s policy even if requested because it was none of [the landowner’s] business. She also testified that it would be unusual for an additional insured to receive anything other than a certificate; a policy would not be issued “without a lot of kicking and screaming” on her behalf; and she would not give out the specifics of the policy because her insured might not want others to know how much it was paying for insurance. What was considered a setback for the certificate holder was that neither it nor its insurers: (1) contended that a copy of the policies or the additional insured endorsements that would have existed was ever requested; (2) pointed to any testimony of the insurer’s underwriters indicating that they would have refused access to the policies or endorsements; or (3) pointed to any testimony of the contractor indicating that it would have refused to consent to the landowner’s reviewing the policy. The court, in ruling against the certificate holder, stated that to prevail on a claim of negligent or fraudulent misrepresentation, a plaintiff must show that he or she reasonably relied on the defendant’s false representations. In this case, it was the court’s opinion that the neither the certificate holder nor its insurers presented substantial evidence indicating that it was reasonable for the certificate holder to rely on the certificate indicating it was an additional insured and thus awarding the contract. Taking the court’s advice The court espoused some other opinions that not only are worthwhile to repeat here but also should seriously be considered as the rationale behind future demands of parties for certified copies of policies. First, the holder of the certificate was warned that it was not entitled to rely on the certificate itself for coverage. The certificate, the court explained, prominently stated that it was issued as a matter of information only and that it did not amend, extend or alter coverage provided by the policies. (But does this give agents/brokers license to give false information?) Second, there was no admissible evidence that the certificate holder wanted to review the contractor’s policy on which it sought to rely. (The certificate is supposed to confirm coverage.) Third, the court said that an additional insured should have the same obligation to review the policy as does the named insured. (This broker may be doing a lot of kicking and screaming in the future.) The court also referred to a legal treatise that was quoted as saying that a copy of the additional insured endorsement should be demanded to confirm that status, and not simply a copy of the certificate. This court, in fact, suggested that having a copy of the additional insured endorsement might have been sufficient proof in lieu of a copy of the policy. If a certificate holder will accept an additional insured endorsement along with a certificate, by all means it should be provided. It will at least avoid the issue of the fictitious additional insured syndrome—that is, a certificate confirming additional insured status in cases where the policy has not been endorsed. A growing problem, however, is that as far as the construction industry is concerned, certificates are inadequate in confirming with more specificity what coverages and exclusions may apply. There are limitation endorsements for contractual liability; exclusions for explosion, collapse and underground damage; exclusions for damage to work performed on the named insured’s behalf by subcontractors; and the designated ongoing operations exclusion, to name a few, but there is no space on the certificate to confirm their application. Finally, the important notice comprising the reverse side of the certificate, which was added in 1999, was said by this court not to have appeared in the record. (It is not unusual for those issuing certificates to overlook an important message on the reverse side, which states that when a certificate holder is an additional insured, an endorsement should be issued.) Drastic measures The question is whether or not insurers can issue these certified policies quickly. If larger brokers can issue memoranda of insurance via the Internet 24 hours a day and seven days a week, there is no reason why insurers cannot make copies of policies available 24/7. Some of these memoranda, incidentally, give out more information than do certificates. The issuance of a certified policy is also a good thing for agents. The one to whom policies are issued may catch errors that are common during policy issuance. Also, if some information is overlooked that is detrimental to the one to whom the policy is issued, no one is to blame but the one who reviewed and missed the discrepancy. Obtaining a complete policy is better than obtaining only an additional insured endorsement. At least one can better determine the extent to which additional insured coverage may apply. When the broker is the named insured’s agent, the insurer whose policy is reflected in the certificate is not accountable for misrepresentations. This is another reason that a certified copy of the policy would be especially helpful. With the courts holding that copies should be required and reviewed (and this is seconded by some legal treatises), it would make good risk management sense for parties to begin demanding certified copies of policies. It may also help to curb the avoidable problems that some agents/brokers are generating today. * The author |
|
|||||||||||||
| ||||||||||||||