Agents E&O Loss Prevention

Certificates of insurance

Some “best practices” to consider

By Curtis M. Pearsall, CPCU, AIAF, CPIA

Certificates of insurance have been around for a long time. So why, after all these years, is the handling of certificates of insurance causing such an uproar? At the recent Network of Vertafore Users (NetVU)—formerly The AMS Users’ Group—in Nashville, I was fortunate to work with Joyce Sigler, vice president of Jones & Werner, an independent agency in Fairlawn, Ohio, in presenting a program titled “Best Practices for Certificates.” During this session, it was quite evident that the handling of certificates was an issue front and center in agents’ minds.

Reports from the industry state that E&O claims coming from the handling—or improper handling—of certificates of insurance are in the area of 2% to 4%. While certainly not a huge number, it is higher than it should be.

As you are probably aware, a certificate of insurance is a snapshot at that point in time; it does not modify coverage and is not intended to change the terms of the contract.

ACORD has come out with a new version of the ACORD 25 form, which has created anxiety among a number of agents. A concern is that while this new form has been filed and approved in a significant number of states, as of this writing, many of the various agency management systems have not been updated to allow agents to pull up the data to prefill this new version. It is my understanding that most systems should have this resolved by the third quarter. It appears there is only one solution: download the new version and complete the requests manually. For many, this will be extra work at a time when capacity is limited—but there might be no other way.

Based on feedback from the 200 or so agents at the Nashville session, there is the possibility of both the current ACORD 25 form and the new version being rejected by the certificate holder. Many entities don’t like the new form.

As Joyce Sigler commented at the NetVU session, “They don’t understand they are given ‘rules’ for their business by their corporate legal and the new form doesn’t fit into their rules yet. Folks are saying, ‘I don’t know what this or that means. I just know it has to be exactly like our sample.’ It is a sticky situation because the current form is being rejected and because some states have issued a mandate that the new form be used.”

Bottom line, if the state has approved the new form, it must be used. (Note: ACORD standard is that older forms can be used for 12 months after a new form is voted into place, and then the new form should be in place.)

Things to think about

There are a number of changes with this new form—among them, the “endeavor” wording has been struck. In the long run, this should be beneficial as it eliminates the “requirement” of sending out cancellation notices.

Some Best Practices to seriously consider:

• Have a written procedure for the handling/issuance of certs. This should address all the pertinent issues, including how to handle requests for adding additional insureds when the policy does not provide this coverage. Give serious consideration to identifying a limited number of staff who can handle this responsibility. Make sure they receive the necessary training.

• Periodically audit completed certificates. This is to ensure that they are done in accordance with established agency procedures.

• If you are issuing certificates on behalf of E&S carriers with which you have placed business, understand that unless you have an E&S license and are acting as the wholesaler, you are technically not the agent. Get approval from your E&S wholesaler to issue these. Many agents issue a “draft” and send it to the wholesaler for approval. This is acceptable.

• Issue the certificate from your system. This will ensure that the right producer, named insured(s), carrier, policy number(s), policy dates, etc., are secured. If you still manually produce certificates, as your software is updated to the new ACORD 25 form, take advantage of technology. It is a great time saver and will help reduce (but not eliminate) the potential for mistakes.

• Use the Additional Insured column as much as possible. This will help tie additional insureds into the right coverage.

• Do not issue a certificate with additional coverages notes (such as Additional Insured) if the policy does not reflect this coverage. If you need to get permission from the carrier, do so—and get it in writing before adding this to the certificate.

• Do not type this year’s certificate based on last year’s. Have a procedure to update the data—it just might have changed!

• On the new ACORD form, garage liability has been struck. It is suggested to enter this under GL.

Questions and answers

There were several excellent questions at the conference that warranted additional research. These questions included:

When an agent issues a certificate of insurance, is he or she legally obligated to list all applicable policies? (For example, do they list the primary and all excess policies?) I could not locate any specific legal precedent on this while researching it. It makes sense to list only those coverages applicable to the request for the cert.

For example, when sending a certificate to a general contractor, it would probably be necessary to list only the workers compensation, liability and umbrella coverages, not property. Plus, I would suggest that an agent include all applicable policies (primary and excess) unless the request for the cert asks only for limit/coverage verification up to a certain limit.

When an agent issues a certificate but the excess policy excludes certain coverage (example: pollution), should the agent list the excess policy? If the certificate request is to show proof of pollution coverage, then no, the agent should not indicate on the cert any policies that exclude this coverage. If you were to list the policies even though the coverage was excluded (even with a notation) this could serve to confuse the certificate holder.

If it is necessary to issue a cancellation notice (as some carriers are putting this on the agent’s shoulders), should they reissue the certificate and indicate “cancelled” on it? If so, should they include the limits? I don’t believe I have ever seen a certificate reissued to show that coverage has been cancelled. I suggest sending a copy of the cancellation notice or, if you are going to use the certificate, clearly marking it CANCELLED and sending it out.

What should I do when I am unable to furnish the certificate in the form requested by the certificate holder because the carrier will not allow it? Joyce had some great suggestions for this. In these situations, establish an agency-standard wording. Use the following: “We are pleased to attach an industry-standard ACORD certificate of insurance issued on your behalf for the captioned client. The insurance company will not execute, and would not authorize our agency to execute, the special certificate of insurance you requested. Upon your request and if authorized by our insured, we will be happy to provide you with certified copies of all liability insurance policies in force for our insured that are relevant to your contract.”

Does it make a difference who signs the certificates? Yes. It is vital that the person executing the certificate is not only licensed, but if you have clients in other than your home state, the person signing the certificate needs to be licensed in the state where your client does business.

To summarize, develop an agency procedure involving the issuance of certificates and educate your staff on this important procedure.

The author
Curtis M. Pearsall, CPCU, AIAF, CPIA, is a special consultant to the Utica National Agents E&O program.