Should Agents Send Certificates to Insurers?
Note: This article was originally written with the pre-September 2009 ACORD certificate forms in mind. Those forms included an "endeavor to" notice of cancellation statement that has now been removed. Despite that change, we still recommend that insurers be copied on certificates of insurance. The reasoning is reflected in the court cases cited below. Sometimes an error or omission occurs and it is not clear where in the certificate/AI/binding/policy issuance process this occurred. As the court cases indicate, the insurer may attempt to disassociate itself from litgiation by stating that it never got a copy of the certificate and so was unaware of the situation or circumstances. A certificate of insurance is issued by an agency on behalf of the insurer. Therefore, it is our opinion that the principal in the relationship should be notified and made aware of what the agency is doing on their behalf. If the insurer wants to discard the certificates, that is their choice.
An insurer recently sent its agency force a "Good News!" bulletin advising that it was no longer necessary to send it copies of most certificates of insurance. The bulletin also pointed out that it was the responsibility of the agent to notify the certificate holder of cancellation. What should agencies do when told by a carrier not to send copies of certificates? This question was recently raised (for the nth time) by one of our member agencies:
"One of our companies doesn't want us to send them copies of the certificate of liability insurance. My question is two part:
"1) The certificate of liability form states the 'issuing INSURER will endeavor' to notify the certificate holder of cancellation...how can the agency be held responsible for notification for what is stated clearly the carrier's responsibility?
"2) If the company doesn't want a copy of the certificate, why should the agency start notifying certificate holders?
"Should agencies assume the responsibility of what is the carrier's duty? Does the agency have a legal exposure? If yes, then how do you suggest agencies respond?"
I taught my first E&O class close to 20 years ago. The issue of cancellation notice was addressed then and probably had been for years. In general, E&O carriers recommend that agents not provide notice of cancellation to insureds, mortgagees, loss payees, certificate holders, or anyone else. Cancellation is the dissolution of a contract. The parties to the contract are the insured and insurer, not the agent. Ancillary parties either have a contractual right of notice under the policy (e.g., mortgagees and some loss payees) or they don't (most certificate holders, even if additional insureds). Only a party to a contract can cancel it and that party is the one charged with the responsibility of notice.
I recently participated in a teleconference on this and related issues last week. An E&O carrier representative and attorney participating in the call advised, regardless of the carrier's directive, that certificates should be copied to the insurer. You're right...the certificate says that the insurer, not the agent, will endeavor to provide notice of cancellation. Without a copy of the certificate, that would be impossible and issuance of the certificate would appear to be a sham. In a court hearing, how would it look if the plaintiff's attorney accuses the carrier and agency of fraud or misrepresentation for making a claim they clearly had no intention of compying with? (Note: For the ethics of this practice, check out "Certificates of Insurance: Will You 'Endeavor To' Be Ethical.")
In general, since the parties to the contract are insurer and insured, agencies should NOT be sending out cancellations to anyone. If it's absolutely necessary, then EVERYONE should be getting such notices. Agencies should insist on hold harmless agreements with carriers who do not intend to comply with certificate provisions that they will endeavor to provide notice of cancellation.
We have an article called "Certificates and Court Cases" that outlines a number of situations where agents have been found liable for activities involving certificates of insurance. One such case was brought to my attention recently. In Marlin v. Wetzel County Board of Education, 569 S.E.2d 462 (West Virginia Ct. App., 2002), "[t]he insurance company asserted that it never received the certificate of insurance or any other document suggesting the insurance policies needed to be amended" to make the Board an additional insured. According to the court, "[The insurer] does not dispute that its agent issued a certificate of insurance listing the Board as an additional insured. Instead, [the insurer] argues that it had no knowledge of the certificate's existence, and therefore could not modify the actual policy to include coverage for the Board."
In addition, most recently (June 2009) in Erie Insurance Group v. National Grange Mutual Ins. Co., the New York Supreme Court found the insurer not responsible in part because it never received a certificate of insurance:
Ideally, agents should continue to provide copies of certificates to insurers and insurers should "endeavor to" provide notice of cancellation to certificate holders. The alternative is for insurers to provide agents with an ironclad hold harmless agreement that will defend and indemnify agents for claims or suits involving certificates issued on behalf of parties insured by such carriers.
For additional questions and answers about certificates, check out the articles, "Following Up on Certificates of Insurance" and "Certificates of Insurance Q&A."
Last Updated: November 10, 2010