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LEGALLY SPEAKING:
Additional Insured Status:
Legal Issues Involving Certificates of Insurance
By Matthew J. DeVries and Angela Stephens and and J.D. Humphries, III
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“Certificates of Insurance” are used in the construction industry in every state
to reflect the identity of insurance carriers, types of coverage, policy numbers
and policy limits. Historically, these Certificates of Insurance have also been
used to provide time limits for notices of cancellation requirements to
“additional insureds” and certain other information.
Construction contracts are sometimes prepared by attorneys and contract managers
with a goal of requiring certain insurance coverages on ISO forms that, for one
reason or another, are no longer available in the market. Other times, the ISO
forms require notices of policy cancellation to additional insureds that are not
provided for in the insurance policies themselves. Contractors may be
contractually required to supply, and, insurance agents are sometimes requested
to issue, Certificates of Insurance indicating that the insurance coverages in
force coincide with and comply with the insurance coverages required by a given
construction contract. Difficulties arise when information contained on a
Certificate of Insurance varies from insurance coverage actually provided by the
insurance policies themselves. Recent legislation and recent changes in most
forms of Certificates of Insurance preclude using a Certificate to provide
additional information not in the policy itself or to express an opinion as to
coverage.
What is a Certificate of Insurance? Certificates of Insurance are not
policies of insurance. They do not amend, modify, endorse, constitute a rider,
or provide insurance coverage not provided in the policies of insurance
themselves. Certificates of Insurance are informational. Certificates do
represent that coverage exists, but the coverage is provided by the policy, not
the Certificate.
The Legal Concerns. Disputes arise when a Certificate provides something
that varies or differs from the insurance policy. All states have a regulation,
statute, Insurance Commissioner direction, Attorney General opinion, or case
which addresses or involves Insurance Certificates. The insurance industry and
state legislatures have both become increasingly more aggressive in regulating
the use and abuse of Certificates of Insurance.
The 2010 form of ACORD Insurance Certificate (2010/05) explicitly states that
Insurance Certificates do not amend, modify or add coverage not afforded by the
policies. On its face such form states:
THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS
NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT
AFFIRMATIVELY OR NEGATIVELY AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED
BY THE POLICIES BELOW. THIS CERTIFICATE OF INSURANCE DOES NOT CONSTITUTE
A CONTRACT BETWEEN THE ISSUING INSURER(S), AUTHORIZED REPRESENTATIVE OR
PRODUCER, AND THE CERTIFICATE HOLDER.
Additionally, the new ACORD form provides the following information as
it relates to notice of cancellation:
Should any of the above described policies be cancelled before the
expiration date thereof, notice will be delivered in accordance with the
policy provisions.
This is much different than the old version which provided:
Should any of the above described policies be cancelled before the
expiration date thereof, the issuing insurer will endeavor to mail ____
days written notice to the Certificate Holder named to the left, but
failure to do so shall impose no obligation or liability of any kind
upon the insurer, its agents or representatives.
Most states provide a time period by statute for such cancellation notification
periods applicable to policies issued in that state. Sometimes agents may
undertake notification obligations beyond policy requirements, but do so at
their risk.
The Legislative Response. To address the use of Certificates of
Insurance, four states have recently enacted Certificates of Insurance statutes.
Among other things, these statutes prohibit insurance agents from issuing, and
prohibit owners or contractors from requiring language on a Certificate of
Insurance which reflects that insurance policies identified conform to any
contract or provide insurance required by a contract.
The four states which have recently enacted legislation are Louisiana and North
Dakota in 2010, and Utah and Georgia in 2011. This new legislation is reflective
of a national trend to expressly limit what can be accomplished through the use
of an Insurance Certificate. Certificates verify existence of policies but do
not provide coverage. These recent statutes address, among other things, advance
notice of policy cancellation, references to compliance with contracts,
providing false or misleading statements on Certificates and, in some instances,
impose fines and sanctions for violations of the statute(s).
About the Authors: Matt and J.D. are members of the Construction
Service Group of Stites & Harbison, PLLC. Matt is a LEED® Accredited
Professional, he lives in Nashville and he is the founder of
www.bestpracticesconstructionlaw.com. J.D. is the Executive Member of the
Atlanta office, he is rated AV by Martindale and he is listed in the Best
Lawyers. You can reach the authors at
mdevries@stites.com and
jhumphries@stites.com.
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