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Certificates of Insurance: Will You "Endeavor To" Be Ethical?

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Bill Wilson
Abstract
The ACORD certificates of insurance indicate that the issuing insurer will "endeavor to" provide notice of cancellation to the certificate holder. Typically, nothing in the policy requires this and many of your insurers say they do not even want copies of certificates, much less plan to provide notice. Is telling the certificate holder that the insurer with "endeavor to" provide notice of cancellation (when they clearly have no intention of doing so) ethical?

The ACORD certificate of insurance forms say that "the issuing insurer will endeavor to mail ____ days written notice to the certificate holder." Just recently, one of your largest insurers advised that they no longer want to be copied on certificates and that notice of cancellation to any certificate holders must be mailed by the agency. What should you do?

Note: For another look at this issue, check out the article "Following Up on Certificates of Insurance."

Obviously the insurer does not plan to "endeavor to" (i.e., "try to") provide the certificate holder with cancellation notice, even though the certificate says "the issuing insurer" will do so. In most cases, there is no contractual obligation to notify certificate holders of cancellation.
At least one state insurance department (New York, February 15, 2006) has moved this issue from the realm of ethical dilemmas to that of regulatory decree by opining that, if a policy (presumably including additional insured endorsements) does not grant a right to notice of cancellation, then the ACORD certificate should not include such a grant.
E&O educators tell you, if you do it for one, you should do it for all. So, does issuing a certificate with the "will endeavor to" wording constitute a breach of ethics? If so, what is the solution???
We posed this question to readers of the VU newsletter and here is a representative sampling of their responses:

Please don’t use my name on this, but in my opinion (and you know I follow the issues of Certificates of Insurance closely), [here’s the part you can use] If neither the agency nor the insurer has any intention of sending cancellation notice to the certificate holder, to complete the certificate by filling in a number of days notice might be a material misrepresentation made by the insurer and/or agent, and not just an ethics issue.
Disclaimer wording aside, “endeavor” does means that the insurer or their representative will at least try. If is found that the issuer never had any intention to a least try, then agreeing to endeavor to send such notice is a false state of a fact which a court might find to be a material representation. The fact that a Certificate of Insurance is not a contract does not eliminate potential liability from a material misrepresentation made by the issuer.

We were told by most of our companies not to send them the certificates as they do not want them. We do not care what the company says and we mail "all" of our certificates to "every" company and make a record that it was mailed. The certificate does not say that the agent will endeavor to mail; it says the insurer will endeavor to mail. We feel that this takes us off the hook with the E&O issue and that we have proof this was mailed to the company over their advice not to. What they do with the certificates is their business, but we pay no attention to their advice not to mail.
 
Alan Kunkel
Kunkel Insurance Agency, Inc.
Jasper, IN

As an agent/broker I have been dealing with this issue for 40 years. As a student of the business and instructor for the IEA, I have been teaching and discussing this issue with 1000's of insurance professionals over the last 30 years.
I have many clients that are certificate holders and certificate givers. I tell all of them that they MUST not rely on a certificate for any grant of coverage or privilege under the policy.
The term "endeavor to" is so ambiguous and subjective that it can not be relied upon for any certainty of action. I could endeavor to give you a $1,000,000 but that does not mean you will get it. Endeavor can be no more than a wish or a prayer.
Barring any direct promise to do so, I do not believe that failing to notify a certificate holder of cancellation or change is a breach of of the standard of care. Unless you specifically obligate yourself to that certificate holder, there is no obligation to physically notify them.
I have been involved in several law suits regarding this issue as an expert and it has become very clear that the standard of the industry is generally not to provide specific notification. While something may be legal and not ethical, I believe that the standard applying to the millions of certificates that are issued are pretty clear.
If it is vital to the certificate holder to have notification of cancellation or change, then it should be endorsed onto the policy.
I believe that all agent/brokers have an ethical duty to advise certificate holders that certificates may not be relied upon for a grant of coverage or privilege under the policy and that they ONLY provide a snap-shot in time that certain policies existed as of the date the certificate was issued.
Thanks for letting me have my say.
Respectfully,
Richard Masters, CPCU, ARM, AAI, AIS
Vice President
Andreini & Company
Oxnard, CA

Get the "endeavor to" verbage OFF the ACORD Certificate of insurance. PERIOD. If carriers aren't going to honor it, then WHY does this document make representations in the first place that insurance companies have no legal obligation to adhere to? There-in lies the problem, if you ask me. Agents are forced to sign off on pre-printed documents. Modify the document.
LESS is MORE on a ACORD Certificate or Evidence pertaining to rights and responsibilties of the certholder or the insurance company. Certholder has NO rights. It's just a piece of paper, in my opinion, with some out-dated verbage. Someone needs to track down the history of why that verbage is on there and amend it going forward.
 
Sandra J. Fournier
R W Insurance
Dover, NH 

Yes, I agree that it is unethical to state that you will "endeavor to" do something when the truth of the matter is, you have absolutely no intention of doing it.
Once upon a time, insurance companies actually did send out notice of cancellations to Certificate Holders. But those were the days when the number of certificate holders on any one policy was actually manageable, and most parties who requested certificates were those who had interests that stretched out over a period of time (landlords, mortgagees, lessors of equipment, etc).
The use of Certificates has expanded so much over the past couple of decades that now every purchase and every minor job requires the issuance of a Certificates. What was once perhaps 50 or so Certs on any particular policyholder has now morphed into the thousands. To expect an insurance company or the broker to physically send out notices of cancellation to thousands of Certificate Holders, who may or may not even care, is absolutely ludicrous.
The ethical - and practical - solution is to get rid of the cancellation wording - period - and return the use of the Certificate to what it should be: a certification that insurance coverage is in place as of a specific date and time.        
Jayne Sexton Mazziotti, CIC
Area Assistant Vice President
Arthur J. Gallagher Risk Management Services
Arthur J. Gallagher & Co Insurance Brokers of California, Inc.

We're being asked to do this without compensation. The carriers COULD do it and pass the cost along as administrative expense as part of the premium. Agents don't have the ability to pass along costs not contemplated by their meager cut of the premium. The lending industry is in an uproar about the new ACORD Evidence of Insurance forms.
If this is going to fall in the laps of agents, they should be able to charge for the service...if you buy real estate, look at the charges included for origination fees, closing costs, and servicing fees, many of which are simply paperwork processing charges. Lenders want to pass along their business risks to the insurance industry, specifically agents, and I believe agents are entitled to compensation, though some state laws or regulations probably won't permit it.

It became obvious to me many years ago that compensation by commission bears little relation to the amount of work performed. In fact, I would suggest such compensation is a detriment to the industry and consumers because the less professional agents tend to do the absolute minimum to avoid losing accounts (playing golf is the priority with the owners). I wanted no part of that and left the insurance agency/broker side of the business in part for this reason. As a RM consultant, we are compensated on a straight fee for service basis, usually an hourly rate. But we also don’t sell insurance, so the analogy may be reaching.
While I know it is prohibited in some states and some situations, other than the largest of brokers, agents and brokers seem very reluctant to try a fee basis in lieu of commission. I have suggested to more than one broker who has ruminated on how to convert to a fee basis that they estimate the time and expense they actually expect to incur, estimate an hourly rate (varying by personnel within the agency), and obtain their compensation in this manner, entering a clear agreement with the client as to what services are contemplated (and not contemplated) in their service or stewardship agreement, and then do it. This approach puts to the forefront exactly the services the agent/broker will be performing and manages the client’s expectations. I would suggest that the agent/broker will have a more satisfied customer and the agent/broker will be more fairly compensated. It also reduces E&O claims, as you know the most common of which is failure to procure coverage.
My sense is that changing old ways is very difficult and that such an approach would force agents and brokers to examine what they actually do and measure whether the activity is being properly rewarded, anathema to many.

Our agency gets of fair share of requests to strike out the endeavor to language. Lately, these requests have been much more numerous than in
the past.  
I would like to get you opinion on a point of view on the wording in the certificate. While the wording says the issuing insurer will mail, or endeavor to mail, so many days notice - the wording does not say the notice has to be prior to a cancellation. It only says the notice will be given within 10 or 30 days notice. This can easily be interpreted to mean that we'll tell you about a cancellation within a certain time frame, but that time frame can be within so many days of a cancellation either before or after. 
While many clients get second notices of payment or notices of cancellation for nonpayment, very few actually get canceled. So I don't believe that striking out the "endeavor to" wording places as much hardship on the agent/insurer as if the wording required notice to be given prior to a cancellation.
However, it can still be a problem and our association would be better off if none of agents would agree to amend the cancellation section of the certificate, but competitive pressures won't allow that to happen. The only solution is state legislation be passed prohibiting the amendment of the cancellation provisions of a certificate of insurance. Every agent in Texas would be grateful.  Thanks for your interest in this problem.
Hill Adams
Pathfinder LL&D Insurance Group
Houston, TX 

Interesting comment about the notice of cancellation and you might be right that it doesn't technically say advance notice prior to cancellation, though I think that might be reasonably inferred giving the nature of the certificate holder's request. I think the advance notice request more commonly occurs in the actual contract the insured is signing, so a related issue is anything the agent provides that even remotely implies that the certificate represents compliance with the insurance provisions of the contract the insured signed.
 
Alabama passed a regulation that basically prohibits modifying an ACORD form without such modified form being filed with the DOI. Their law also prohibits issuing a certificate that implies coverages or conditions not actually afforded by the policy. Have you reviewed our Texas state association's new "Best Practices" paper on certificates of insurance? If not, I strongly recommend downloading it in that it includes "best practices" of certificates with a focus on processing considerations:
  Best Practices for Certificates of Insurance  (IIAB of Texas)

I very much appreciate the work you have done on the Certificate of Insurance issue. It is well-organized and written. On the issue of “Endeavor to mail,” the insurer that either directly issues or under agency contract permits its agents to issue certificates on its behalf has a good faith responsibility to provide notice to any certificate holder.
Our firm insists upon providing each of our insurance companies with copies of all certificates we issue and we do so without exception. It is apparent that some insurers have a head in the sand approach to this issue, and they will be held accountable by litigation, regulatory and legislative action where they are unable to demonstrate that they have practices and procedures to execute this good faith responsibility. 

Well, we don’t have much choice but to at least try to address the issue. Some of our carriers are taking the responsibility to notify certificate holders, though.
For those that don’t (or even if they do), and IF they required elimination of the clauses in question, we had a task force to come up with a procedure. Have to keep the owner’s legal department and SOX auditors happy. I’ve attached the write-up.
Lance Bateman
Operations Manager
ASB-Bishop Insurance Agency
Honolulu, HI
NOTE: The agency has gratiously permitted us to share their document with other IIABA member agencies. We suggest that you adapt their work to best fit your procedures, E&O considerations, and business practices. You can download a copy by clicking here:
  Sample Certificates of Insurance Agency Procedures

Insurance carriers no longer requiring copies of certs and thereby not mailing direct notice to cert holders may be stupid but they are not failing the requirement "to endeavor." Their "endeavorment" is to have their agent take up the responsibility for doing or not doing this. Since they have no record of the holder there is no endeavorment created. The agent may have a problem but not the carrier.
 
I believe it is within "endeavorment" to accept nothing and issue nothing by having your agent decide what he will or will not do. I further believe that the agent should send each cert holder a letter reviewing what the insurer has done and indicating they will not be receiving a notice of cancellation issued by the carrier for this reason. Since the agent no longer has to send a copy to the carrier maybe he can note this in the certificate as well!
 
Bill Ford, CPCU CIC ARM AAI CLU JD
Rankin - Shuttleworth of Georgia , LLC
Norcross, Georgia

Virtually all of our carriers have advised us NOT to send them copies of certificates, however our agency rule is to copy them on all certificates we issue. Some carriers tell us that they just throw them away and others have actually mailed them back to us (and we just mail them back again!). We do not alter certificates without prior written approval from the carrier, which has caused us to lose the occasional insured. There is always the agency out there that will issue a certificate per the insured's instructions regardless of what the policy says. (You know the drill "the job's all done...I just need the certificate to get paid.")
You would think that in this age of electronics, one of the management systems or one of the carriers would have figured out a way for us to issue certificates and electronically notify the carrier. It would not be necessary to actually send a copy of the certificate, unless you modified it. Maybe there could be a report that could be generated daily (like upload/download) that we could send to the carrier with a list of all certificates issued along with the client information. It could have an attachment of those certificates that were altered, with modifications noted. The carrier would only have to deal with those that are modified.
I think the problem here might be that the carrier doesn't want the burden of notifying certificate holders in the event of cancellation. If they don't receive the certificates, they don't have to do anything. Again, what about using technology? Have the ACORD certificate form have a place to indicate an email address so the carrier could send notification. That way they could also have verification that they sent the email and that the certificate holder received the email. It would help in the event of an E&O claim. Dream on...
Karen Serra, CIC
George B. Ford Agency, Inc.
Novi, MI 

From an E&O standpoint, the agency shouldn't be sending certifcate holders notice of cancellation, but from a practical standpoint, there are so many agents who SAY they will do it, that agents are losing accounts to them. We all know that many of the agents saying they or their insurers will provide notice don't plan to, but they figure there's not a great likelihood of a mid-term cancellation that won't be reinstated.
 
I've actually heard from company people that agents DON'T want them to provide cancellation notice without notifying them first. What supposedly happens is that the insured misses a financed payment and the finance company or carrier sends out a cancellation notice. Typically, the missed payment is an oversight or delay and the payment is ultimately made. In the meantime, if the carrier sends out cancellation notices, the certificate holder gets his, then goes after the contractor who is then mad at the agent.
 
Still, I think carriers should be responsible OR agents should be able to charge for the expense. Lenders are insisting that they get notice of cancellation (usually provided for by the policy anyway for mortgagees), but they prefer not to pay for them...at the same time, they're charging huge fees for closing loans that are largely reimbursements for paperwork.

In response to the question of Certificates of Insurance - "the issuing insurer will endeavor to mail ___ days written notice to the certificate holder" - that is being addressed in the IIABA's Virtual University VUpoint Newsletter - Vol. 8, No. 5 - Friday, 3/9/07:
 
I submit the that the carriers are not holding up their responsibility.
 
I do have some carriers that do the right thing and send notices of cancellation to all certificate holders they have on file. I have a large/worldwide carrier that sends a letter to us when a cancellation occurs asking that we send them any and all certs. on file so that they can notify them. So, even all the carriers are all over the place in how they handle notification to certificate holders.
 
I have determined that I send certificate copies to ALL CARRIERS. It is their responsibility to hold up the "endeavor" promise on the certificate. If they then want to trash the copies, that is their problem. However, as they do seem to hold up in court, I believe that Insuring Carrier needs to be put on notice of any and all certificates issued. I still try (most of the time are successful) in obtaining the job reference and job location as well. So, this also notifies the carriers of the types of jobs and the location; and again, if there is a problem and they have been notified by certificate copy, and they don't respond, then the carrier has no room to complain.
 
There are many, many times when certificate holders want any and all language on the certificates; when I tell them that it cannot be done, they tell me that they have NOT had a problem with other agencies, and don't understand how some can give them the wording and some cannot. I submit that newer people in the industry, don't understand that some things cannot be changed in the contract by certificate. Again, I have also been told, ON MANY OCCASIONS, that the carriers DON'T WANT THE CERTIFICATES. So, any and all types of variations are on the certificates, unbeknownst to the Carriers.
 
Being of the old school, I do certificates the SAME, all of the time. A copy to the certificate holder; a copy to the insured for their records, and A COPY TO THE INSURANCE CARRIER. That way, if there is any E&O issue that comes up, I can tell them that I do this the same for ALL CERTIFICATES ISSUED.
 
With the computers being better and better, how hard can it be to add certificate holders to a policy, and when a cancellation is issued, it is issued to the insured and ALL THE CERTIFICATE HOLDERS? It is expensive, yes, but it is the correct approach. The industry should be doing the RIGHT THING. Otherwise, certificates will be issued any and all ways that any and all parties request.
Terry A. Penny, CISR, ACSR
Foy Insurance - Concord
Concord  NH 

As previously indicated, I really appreciate your efforts to start a dialogue on Certificates in your recent white paper. Your presentation is timely and contains many "real world" issues that need to be addressed by the industry and especially IIABA's and its affilliates' members. One of the more interesting issues, in my mind, is the real tension between what is ethical and what is "doable". Per your request for opinions, I will try to develop how I see this incredible dilemna from the prespective of a front-line agent who deals with Certificate issues virtually daily.
 
Until three to five years, we operated on a very simple premise: it was the agency responsibility to issue the certs and the carrier responsibility to:
  • make corrections to incorrect representations of coverage and
  • notify certificate holders of any cancellations.
About three years ago, carriers started changing their processes regarding certs along the lines that your non-hypothetical example suggests. Very few reasons were given for this change nor were their real enforcement actions taken to change our behavior. We still sent certs to our carriers with the implied understanding that they will still perform their responsibilities. I am not aware of any carrier returning the certs to us. We understand "we toss them communication", but still rely on companies to make the notification. I understand that our practice is followed by many other agents.
 
To the best of my knowledge, no carrier has provided written reasons for making the changes provided by your example. I suspect they found this course of action necessary for one of several reasons:
  • they were buried in a notification process for which they had neither the human or system resources to sustain;
  • they were concerned with their greater liability to provide notice and thought it prudent to "contract" to their independent contractor partner agents;
  • after the introduction of the aggregate commercial general liability limits, they were concerned about meeting some state regulations that requires someone to let certificate holders know about erosion of limits; and/or
  • they developed "blanket additional insured" forms as a way to simplify their processing by not knowing who were being named as additional interests so they could avoid having to make frequent policy changes and notifications to many additional insureds.
As a result of carrier attempts to transfer the cancellation notification back to its agents, it has created the type of ethicial challenges that your example suggests. Interestingly, most agents have the same challenges about notification that the carriers have - we do not have the human and system resources to carry out this task either nor can we track the erosion of liability limits. In fact, most of us face serious challenges just issuing the certificates due to the proliferation of "funny language" and certificate modifications that come our way daily. Due to the present realities processing Certificate of Insurances, we agents are caught in a real "catch 22" dilemna for which there are limited remedies.
 
As a front line agents, we face many ethical problems with Certificates:
  • Some competitors issue incorrect certicates and inaccurately represent coverages to their customers and certificate holders which places agents trying to correctly perform these functions in a very tenuous position in many instances.
  • Due to our stressed residential contractor marketplace, we are faced with unprecedented coverage demands which our carriers may or may not wish to consider.
  • When we seek carrier interpretations of their coverage forms, they indicate that it is the agent's responsibility to interpret the provided coverage.
When it comes to the notification process, we are aware of the Certificate language that requires someone to "endeavor to provide the certificate holder with cancellaton notice" but find this requirement onerous and virtually impossible to fully implement due to the sheer number of certs that many accounts have and the timing of sending notice - final cancel or threat of cancellation. I agree that agents are placed in a ethical dilemna in trying to comply with this requirement. Bottom line: we may be breaching an ethical requirement but we try to put more energy into correctly reflecting the provided coverages when we issue the certs.
 
So what should we do? Agents do not like living under the continued stress and uncertainties that the present Certificate process impose upon us. Despite frequent conversations with our carriers, this issue has not had high visibility - it seems to fall under the regulatory and legislative radar in many states. At some point, this issue will develop the critical mass to start making Certificates a more realistic process. In the meantime, agents should:
  • Vocalize the friction points of the current Certificate process among themselves and develop a plan of action to address the daunting problems we face with this process with our company partners;
  • Suggest to our carriers and agency management vendors changes that would make the process more realistic;
  • Suggest to our carriers and regulators that we need some "ground rules" for issuing certificates that are realistic and do not permit certificate holders to demand coverages that are not commonly available; and
  • Get "real" with the insuring public so this doesn't become the next public relations nightmare for our industry
John E. Putnam
SCA Insurance
Colorado Springs, CO

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