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ACORD and Notice of Cancellation

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Bill Wilson
Abstract
ACORD has at least two documents on their web site that state or imply that a certificate of insurance "may be used to copy verbatim information in the policy such as the specific number of days of written notice." We are aware of at least two instances where certificate holders have cited these documents in demanding certain language on the certificate. We STRONGLY encourage you NOT to do this.

"We have a risk manager who insists that we show 'All policies contain a provision that coverage afforded by the policies will not be cancelled without 30 days notice to certificate holder by return receipt of registered letter.' We have told him in the past that ACORD has removed any cancellation details from the ACORD 25 and we will be glad to give him copies of policy forms that detail how cancellation works. At first he accepted that but now he points to an FAQ page on ACORD's web site that he interprets as ACORD's position that it's OK to add cancellation language to their certificate. What should we do???"

This is the second time we've heard about a certificate holder demanding cancellation notice wording on a certificate and using an ACORD document as the rationale that this constitutes ACORD's blessing that the agent do what is being demanded.

This is what the referenced ACORD FAQ document says [emphasis added]:

Each Certificate of Insurance/Evidence form includes, following the “Coverages” section, a field for “Description of Operations” and/or “Remarks”, and that section, or an ACORD 101 Additional Remarks Form, may be used to include more information about the policy, e.g. Number of Days of Written Notice.

http://www.acord.org/standards/forms/Documents/ACORDCertificatesFAQ_201004.pdf

We understand that it is ACORD's form and they can say whatever they want, but the statement that the number of days of written notice can be shown in the "Description of Operations" field conflicts with ACORD's own Forms Instruction Guide which says that field:

Description of Operations / Locations / Vehicles
As used here, records information necessary to identify the operations, locations and vehicles for which the certificate was issued.

As you can see, ACORD's own instruction guide says nothing about entering cancellation information in this field. It is, though, silent with regard to the ACORD 101. We believe that the FAQ statement about entering days of written notice is overly broad and subject to misinterpretation and potential conflict with state insurance laws, regulations and insurance department directives, as is apparently the case here.

ACORD addresses this issue in another document on their web site [emphasis added]:

A Certificate of Insurance/Evidence of Insurance form includes, following the “Coverages” section, a field for “Description of Operations” and/or “Remarks”, and that section, or an Additional Remarks Section, as well as the ACORD 101 Additional Remarks Form may be used to copy verbatim information in the policy such as the specific number of days of written notice. Be aware that using a certificate or other form in an attempt to vary policy terms presents legal risks, including violation of insurance regulatory requirements, and should not be engaged in without prior consultation with insurance carriers, policies and legal counsel.

http://www.acord.org/standards/forms/Documents/20100628_ACORDFormsNotice.pdf

As you can see, this more precise statement says that the certificate can be used to copy "verbatim" the specific number of days of written notice. We take exception with this on two counts. First, again this is in conflict with ACORD's own Forms Instruction Guide as to what information is appropriate for the "Description" field. Second, we believe that simply entering the number of days of notice or a phrase like the certificate holder in question wants conflicts with the second sentence in the notice language above:

Be aware that using a certificate or other form in an attempt to vary policy terms presents legal risks, including violation of insurance regulatory requirements, and should not be engaged in without prior consultation with insurance carriers, policies and legal counsel.

In this notice language, ACORD says that the number of days can be show verbatim on the certificate. Our problem with that is implied by the "Be aware" sentence...you are always in danger of violating insurance regulatory requirements when you start excerpting policy language out of context onto a certificate. Some cancellation endorsements are two pages long and notice of cancellation invariably hinges on WHO requests cancellation (insured or insurer) and for what reason (nonpayment or otherwise). How can you show "30 days" verbatim on a certificate and not effectively be altering what the policy calls for?

Given the rise in certificate litigation in the past few years, we believe that agents open themselves up to claims of misrepresentation if all of the terms of a policy form related to cancellation are not clearly expressed. The only way to ensure that the certificate holder is aware of all of the conditions of cancellation is to provide a copy of the cancellation endorsement. Keep in mind too that certificates are often issued for CGL, auto, workers comp, and umbrella policies and the cancellation provisions can and do vary significantly, on a statutory and contractual basis, on each policy. There is simply no way you can put some kind of abbreviated cancellation statement on a certificate and not misrepresent the full impact of cancellation notice clauses or endorsements.

A certificate should be used to provide basic information about policy forms and limits. It should not be used to paraphrase or condense (even if verbatim) policy coverages, terms and conditions. Doing so may violate many state laws, regulations and DOI directives and is almost certainly asking for an E&O claim based on allegations of misrepresentation or fraud. Since this can mean, for agents, loss of license, five-figure fines, and even prison time, it’s dangerous to suggest that this is a permissible activity.

Last Updated:  January 27, 2011

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