ACORD Certificates of Insurance : What Certificate Holders and Providers Need to Know
The Certificate and
Evidence of Insurance forms which ACORD made effective in late 2009/early 2010
have raised alarm among insurance certificate holders and the insureds that
must provide them. Unless insurers issue manuscript endorsements to their
policies (which is unlikely), insurers no longer make any pledge that they will
even attempt to notify most certificate holders if the policies are cancelled.
The new certificate forms have eliminated the assurance that the insurer would
"endeavor to mail __ days written notice to the certificate holder."
They simply state that "...should any of the above described policies be
cancelled before the expiration date thereof, notice will be delivered in
accordance with the policy provisions."
What does that mean to
certificate holders under standard insurance policies?
1. Liability and auto -
Even if a certificate holder is an additional insured, it will not be
notified if the policy is cancelled. Only the First Named Insured will be
notified.
2. Workers compensation -
Certificate holders will not be notified of cancellation,
since the policy requires the insurance company to notify only the covered
employer.
3. Property - Mortgagees
and loss payees on standard property policies will be notified - 10 days before
the insurer cancels for nonpayment, 30 days before it cancels for any other
reason and 10 days before it nonrenews the policy (unless modified by state requirements).
Other certificate holders, even additional insureds, will not be notified.
4. All policies -
Certificate holders, even additional insureds, will not be
notified if the insured itself cancels the policy.
How should insurance
requirements in contracts be changed in order to respond?
·
Contract language requiring insurance certificates to state that "__
days notice of cancellation be given" and requiring that the
"endeavor to" language in the certificate be deleted, is no longer
applicable. Even if changes are made to the certificate, ACORD has made it
exceedingly clear that changes to the certificate do not change the policy.
·
The contract should require that the insured party provide immediate notice
to the owner, lessor, etc. if the insured entity receives notice of
cancellation or nonrenewal from its insurer. This provision is especially
important since many insurers will not be willing to comply with the
recommendations below, especially for smaller insureds. Unfortunately, this has
the obvious drawback of depending on the very party who is non-performing to
report the non-performance.
·
Contracts should require that the insured's policies be endorsed to meet
the certificate holder's reasonable requirements. (However, as stated above,
not all insurers will be willing to cooperate.) If the insurer is somewhat
cooperative, it may be willing to extending the same notification rights to the
certificate holder that it gives to the first Named Insured. Below is sample
manuscript endorsement wording that would accomplish that end. Very large
insureds may be able to obtain even broader notification rights.
"If we cancel or
elect not to renew this policy, we will give written notice to ____________ at
the following address __________________. We will provide the same notice of
cancellation and nonrenewal that is required by this policy to the first Named
Insured."
So if the certificate
holder is given the same notice of cancellation and nonrenewal as the first
Named Insured, what does that actually mean with standard policies?
Standard commercial
insurance policies provide the first Named Insured with 10 days notice of
cancellation for nonpayment of premium. If the insurer cancels mid-term for any
reason besides non-payment of premium, commercial general liability, automobile
and property policies provide 30 days notice of cancellation. Workers
compensation policies, however, provide only 10 days notice of mid-term
cancellation. If an insurer nonrenews a policy versus cancelling it mid-term,
it may nonrenew a commercial automobile or workers compensation policy without
any advance notice at all. Property policies may also be nonrenewed without any
advance notice to the insured, but if there is a mortgagee or loss payee on the
policy, they must be given at least 10 days advance notice. General liability
policies may be nonrenewed with just 30 days notice.
State laws in most
states change the above requirements, requiring more notice in many situations.
For instance, Florida requires that carriers provide the first Named Insured
with 45 days notice of cancellation in some circumstances. The provisions of
the different state laws are often complicated, differing not only by line of
coverage but also by length of time the policy has been in force, the specific
reasons for the cancellation or nonrenewal, etc. The specific state
requirements can be accessed through the IRMI Insurance Cancellation
Guide published by the International Risk Management Institute.
The larger the insured
client, the more likely that it will be able to obtain additional concessions
from its insurer. If possible, those additional provisions should
require:
1. Advance notice to the
certificate holder even if the insured initiates the cancellation or nonrenewal
and
2. Minimum cancellation
and nonrenewal provisions, regardless of what is provided by the standard
policies or various state laws.
Why not just require
the old form?
You may ask, "Why
doesn't the certificate holder simply require the insured and its insurance
agent to provide the old certificate of insurance form?" What certificate
holders and insureds should know is that if an agent does modify a standard certificate
or signs a custom one that provides notice of cancellation, it is almost
certainly doing so against the explicit direction of the insurance company. So
while the certificate holder may have a paper in its hand which states that the
insurance company will provide notice of cancellation, the insurer will not
stand behind it. If coverage is cancelled, all that the certificate holder has
probably gained is the right to sue the agent and its errors and omissions
carrier. Since the agent is probably executing the modified certificate with
the full knowledge that it is not authorized to do so, coverage under its
errors and omissions policy is suspect. For a fuller understanding of why an
agent executing modified certificates is engaging in a practice which may be unauthorized,
deceptive and potentially illegal, please see the article written by Bill
Wilson of the Independent Insurance Agents and Brokers of America at http://www.iiaba.net/eprise/main/VU/NonMember/WilsonCancellationNotice.htm.
Vendor solutions
I am aware of about 20
different vendors who provide some form of insurance certificate and
verification service. I have found only one vendor that provides a certificate
service that completely bypasses ACORD certificates and their problems. I pass
on their information as a service to readers. Their name is Ins-Cert
Corporation, and information on their services can be found by doing an
Internet search under that name. Their system is Web-based and requires the
agent/broker to agree to make a "good faith effort" to enter notices
of cancellation into their system. The system then automatically sends
cancellation notices to all certificate holders by email. Their system appears
to offer a solution to both the problem of cancellation notices and also the
problem of fraudulent ACORD certificates. From my investigation I believe they
offer a legitimate service and are worthy of consideration. Readers of this
paper who have found other workable solutions to this problem are asked to
contact me.
Why the "Good Ol'
Days" Weren't Really So Good -
Certificate holders
certainly wish that the insurance industry would find a way to notify them when
an insurance policy is cancelled. But in reality, they may not have lost much
in this change besides the illusion that the insurer would notify them.
·
Many insureds have a "blanket additional insured" endorsement on
their liability policies. That means that anyone that the insured agrees to
name as an additional insured in a contract is automatically given that status
in its insurance policy. But that also means that the insurance company does
not obtain the names and addresses of those additional insureds, so the insurer
does not know who they are or how to notify them.
·
Certificate holders would reasonably assume that as a matter of good faith,
insurers would require that the agents/brokers send them a list of all of the
certificates that they issued so that the insurer could "endeavor" to
give notice of cancellation. Incredibly, that is not the case. Many carriers
have explicitly told the agents/brokers not to send them
copies of the certificates.
Since many insurance
carriers have not made the good faith effort to comply with the notice
requirements of the old certificate forms, not much is lost by eliminating the
notice requirements altogether. At least false promises are no longer being
made.
Closing thought
In writing about these
changes on its own Website ACORD explained that it had to change its
certificates because they sometimes contradicted or expanded the duties
contained in the underlying insurance policies. Unfortunately, they were not able
to cooperate with the other players in the insurance industry (the insurance
companies, ISO and NCCI) to craft a solution which solved that problem while
also meeting the legitimate business need of certificate holders to receive a
cancellation notice. The outcry from the business community may need to get
much louder before a better solution to this problem is reached.
The information
presented here is necessarily general and is not intended as legal advice.
Brent Winans, CPCU,
ARM is VP of Risk Management Services for the Plastridge Agency in Delray
Beach, FL. He is available to give a humorous (Yes, humorous!) and informative
presentation on this subject to interested audiences. He also provides
assistance in drafting contemporary and achievable insurance and risk
management language for contracts as well as providing other fee based (no
insurance sales) risk management services.
Article Source: http://EzineArticles.com/expert/Brent_Winans/977309
Article Source: http://EzineArticles.com/6065794
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