By Donald S. Malecki, CPCU

A couple of years ago, agents and brokers [hereinafter agents or agencies] received word from some insurers regarding a new role agents would be assuming in relation to insurance certificates. According to the insurers' directives, instead of using the time-honored tradition of issuing certificates and sending them to the underwriters, agents were to maintain a log of the certificates issued, subject to discretionary review of insurers.

As one might expect, this new approach was not readily accepted. In fact, an informal survey taken by this writer reveals that although some producers are maintaining logs, they are still sending copies of certificates to their underwriters, while others have rejected the idea of maintaining logs altogether.

Whether this reticence conflicts with any agency-company contract is beyond the subject to this article. The primary complaint among agents is that it is time-consuming to maintain certificate logs (a process that is partially for the benefit of insurers), there is no compensation for that time, and the burden of any problems is transferred to the shoulders of the agencies.

Although certificates have generated many negative comments over the years, they have come to be relied on as a common source of confirming certain information about liability insurance policies. Note, however, that confirmation of property insurance is generally contained in a different document, referred to as "Evidence of Property Insurance." The subject of this article is the "Certificate of Insurance," used to confirm liability insurance coverages.

Although manuscript certificates are in circulation today, most certificates are the product of an organization known as ACORD (Association for Cooperative Operations Research and Development), the entity that introduced the first standard certificate in 1976.

While ACORD periodically updates certificates of insurance, the frequency of such updates is not as important as is their content. The ACORD certificate 25-S (7/97), for example, contains a couple of noteworthy items that didn't appear in earlier editions.

The first item of interest deals with the box designated to describe the nature of the operations, which reads: "Description of Operations/Locations/ Vehicles/Exclusions Added by Endorsement/Special Provisions." What is especially important here is the reference to "Exclusions Added by Endorsement."

Properly filling out this section requires a review of the policies to identify the endorsements added for purposes of eliminating coverage. Those who must complete these certificates probably will dread this task, since it will involve more than simply confirming what is commonly shown on the policies' declarations page. In addition, there is the problem of endorsements added after the policy is issued and upon renewal.

On the other hand, certificate holders will like this feature because they need to know whether the coverages they are requesting are in fact being provided, a problem not previously addressed by certificates. Determining what coverages are being provided is essential in today's market, given the propensity of more and more insurers to add exclusionary endorsements that "whittle away" at coverage.

Pre-1985 CGL policies were constructed with certain basic coverages, subject to the addition of endorsements to expand upon the protection required. Those who did not require a contract as broad as the comprehensive general liability policy could have obtained a more limited policy, such as a manufacturers and contractors or owners, landlords and tenants.

Those who recall the 1985 introduction of the standard commercial general liability (CGL) policy may remember that it automatically included as basic coverages many of those that previously had to be provided using what were referred to as monoline endorsements. In some cases this was accomplished using the so-called broad form CGL endorsement. It is common practice, therefore, to see exclusionary endorsements used to eliminate coverage(s) not desired by insureds or underwriters. Examples include exclusion of the explosion, collapse and underground (XC&U) hazards contractual liability coverage through the issuance of the contractual limitation endorsement, and an endorsement eliminating Coverage B of the standard ISO policy dealing with personal and advertising liability.

A growing number of CGL policies restrict coverage to a designated premises. In the very near future, insurers also will be adding endorsements to the contractors' policies eliminating broad form property damage following completion of work either on a blanket or project-specific basis.

It is no wonder then that many certificate holders have grown extremely nervous about confirming coverages. The use of exclusions to limit coverage is one of the primary reasons some entities have long included checklists with their certificates, seeking clarification of the coverage. Other entities are including the list of coverages desired in their written contracts.

At first blush, a request that a certificate confirm such coverages as independent contractors liability, XC&U hazards, broad form property damage including completed operations, personal injury liability coverage, and blanket contractual liability might give someone the impression that the person making such a request is behind the times.

However, given the pace at which the coverage of the CGL policy (as well as the umbrella policy) is eroding, such requests are in fact timely and wise. Unfortunately, they are often met with skepticism and the argument that compliance is burdensome. The requirement of ACORD certificate 25-S (7/97) that exclusions added by endorsement must be described may alleviate some of the concerns expressed by certificate holders. The word "may" is emphasized because a lot hinges on whether the person completing the certificate takes the time to go check the various policies in order to describe on the certificate those exclusions added by endorsement. Will it ever happen? Time will tell.

Even more important is the question of whether or not it should be done. Since the certificate calls for a declaration of exclusionary endorsements, failure to follow that directive could lead to some serious problems. Fortunately for agents, the current consensus of the courts is that the agent of the entity required to issue a certificate is not accountable to the certificate holder. Even the disclaimer on the reverse side of ACORD certificate 25-S (7-97) states: "The Certificate of Insurance on the reverse side of this form does not constitute a contract between the issuing insurer(s), authorized representative or producer, and the certificate holder. ..."

The bottom line is simply that the agency properly completing these certificates is less likely to be a pawn in an argument between an insured and a certificate holder. What the agencies need to be concerned about is that they are accountable to their insureds to the extent of the service they provide to them. If an insured is obligated by contract to obtain certain coverages, which turn out to have been excluded by endorsement to one or more of the insured's policies, the certificate holder wants to learn of this and call it to the attention of the insured.

Another important point is that agents are not obligated to read their clients' contracts. Caution must be exercised here because once an agent takes on the responsibility of reviewing insurance requirements for an insured, he/she probably is acting in the capacity of a consultant.

Agencies that make it a matter of practice to complete the certificate with a list of exclusionary endorsements will be providing the insured the service of revealing what coverages are not being provided, without taking on the added consulting responsibility of reviewing the underlying contract. Whether or not the exclusions revealed by the agent are in breach of underlying contract requirements is the problem of the insured in such instances.

A review of recent certificates issued reveals that ACORD certificate 25-S (7/97) is among various editions still being utilized. Given existing supplies, it may be months before agencies and insurers alike will get to this edition of the certificate. This raises another potential problem. Given that this new certificate is available, shouldn't the agent make it known to the insured? If the new certificate is not utilized by an agent, there could be problems now that it is known to exist.

Once certificate holders get wind of the fact that certain ACORD certificates require a listing of exclusionary endorsements, they will begin requesting it with increasing frequency. If and when that happens, it would behoove agencies to observe the requirements laid down on their clients.

Proof of additional insured status

The ACORD certificate 25-S (7/97) also contains a provision to confirm additional insured status. This reads:

Additional Insured:

Insurer Letter:

If Insurer A is providing the CGL and Automobile Liability, the letter A will appear below the name of the additional insured/certificate holder. If Company B is providing an umbrella policy, the letter B also will be designated.

There is only one additional insured endorsement available with the automobile policy, and it does not matter whether it is issued because coverage automatically applies whether an entity is a designated insured or not. Umbrella policies, on the other hand, commonly include persons and entities as an insured if required by written contract. There are some exceptions where an endorsement
is necessary.

The big problem is with the CGL policy. In a growing number of cases, it is not enough to show someone as being an additional insured on a certificate without describing the nature of the additional insured endorsement. In fact, certificate holders who require additional insured status are getting more sophisticated and are actually prescribing the type of endorsement to be issued.

As was mentioned earlier, this particular ACORD certificate contains some important messages on the reverse side. One of these reads: "If the certificate holder is an ADDITIONAL INSURED, the policy(ies) must be endorsed. A statement on this certificate does not confer right to the certificate holder in lieu of such endorsement(s)."

This certificate speaks the truth; that is, it confers no rights in lieu of the endorsements. The problem is that endorsements may take time to issue and one of the advantages of a certificate is confirmation with expediency. This is not to say that an endorsement should not be requested. It should. But it would likely be more satisfying to certificate holders if the type of additional insured endorsement were also confirmed, e.g., Additional Insured-Owners, Lessees or Contractors, CG 20 10 (11-85).

Certificate holders who also commonly request additional insured status have come to learn to ask for the actual endorsements. Many do not have to be warned or reminded because they have learned the hard way that some endorsements issued look like the standard and commonly requested ones, but closer review reveals they are not worth the paper they are printed on.

Without a doubt, the changes that are taking place in the insurance arena may require more work. With those changes comes the inevitability of a growing sophistication among certificate holders who are demanding broader protection at a time when many insurers are cutting back on what they are willing to provide. Sometimes those requests are justified and sometimes not. In any event, agents need to be on top of the changes effected in certificates of insurance and the information they are expected to provide in relation thereto. *

The author

Donald S. Malecki, CPCU, is chairman and CEO of Donald S. Malecki & Associates, Inc. He is a committee member of the International Insurance Section of the Society of CPCU, on the Examination Committee of the American Institute for CPCU, and is an active member of the Society of Risk Management Consultants.