Certificates of insurance commonly are issued on forms that have been standardized by ACORD (Agency-Company Organization for Research & Development). Information shown on these certificates includes:

·     Date of issuance,

·     Producer,

·     Insured

·     Insurance companies providing the coverage,

·     Type of insurance

·     Policy numbers and effective/expiration dates,

·     Limits carried,

·     Description of operations or other activities to which the insurance being described pertains,

·     Certificate holder, and

·     Cancellation provision for insurance policies described.

The certificate gives the holder information needed to further review the adequacy of the coverage, such as the ability to check the financial integrity of the insurance companies providing the coverage, the applicability of the policy dates, and the existence of the policies. Current editions of ACORD certificates contain preprinted wording that states:

“This certificate is issued as a matter of information only and confers no rights upon the certificate holder. This certificate does not amend, extend or alter the coverage afforded by the policies below.”

The following standard wording also is included within the “Coverages” section of the certificates:

“This is to certify that the policies of insurance listed below have been issued to the insured named above for the policy period indicated, notwithstanding any requirement, term or condition of any contract or other document with respect to which this certificate may be issued or may pertain, the insurance afforded by the policies described herein is subject to all the terms, exclusions and conditions of such policies. Limits shown may have been reduced by paid claims.”

These statements explain the purpose and scope of such certificates of insurance. Certificates are to be used for informational purposes only and do not affect the insurance coverage provided in any way. Contractual requirements between the insured and the certificate holder do not alter or affect the coverage that is provided by the insurance policies themselves. In other words, the insurance policies must be reviewed for specific details of coverage. As will be seen later in this discussion, this wording has impacted the way in which courts have ruled in cases involving discrepancies between certificates of insurance and the insurance policies they represent. In addition, the issue of whether the insurance company or an agent or broker issued the certificate also has impacted such cases.

Certificates of insurance are used to show parties in a transaction what type of insurance is carried. As an example, certificates of insurance often are required of buyers when vendors are engaged. General contractors usually require that their sub-contractors provide evidence that they carry certain types of insurance. Auto leasing companies require that lessors provide certificates to show that required auto insurance is carried both on the leased vehicle and for third party liability situations. Often, certificates are exchanged between parties in an effort to be sure that adequate insurance is in place to finance damages one might cause to the other or to third parties.

The types and limits of insurance coverage that are required usually are spelled out in a purchase order or contract. These documents commonly specify that a certificate of insurance indicating that the coverage requirements have been met must be provided before the agreement is finalized or consummated.

Despite the fact that the certificate often is required in the contractual agreement, the certificate, itself, is not contractual in nature. The wording of the ACORD certificates spells this out clearly. In addition, the limits of coverage shown represent coverage as it was on the effective date of the policies. As noted in the ACORD certificate wording, the limits of coverage may have been reduced by paid claims. Therefore, even the amount of insurance currently available may not be as shown on the certificate.

Because of this, it is important to separate the contractual agreement that specifies insurance coverage and the certificate illustrating the coverage. If a purchase order, loan agreement, or other type of contract requires that a certain type and amount of insurance be carried, the requirement stands whether or not a valid certificate is produced.

Because of this, some contracts may require that, in addition to a certificate of insurance, certified copies of the policies or endorsements indicating coverage is in place as required by the contract also be provided. A certificate is accepted only for the interim period before the policy or endorsement can be provided. This type of requirement may be difficult to fulfill and is the exception rather than the rule. Most often it is seen in agreements where one party—which is requiring the insurance evidence—is in a superior bargaining position to the other party. It commonly is required by mortgagees and other lenders when large amounts of money are being provided. In these cases, the lender wants to be sure that the value of the properties or items being financed is secured by insurance against fortuitous losses.

Only one standard “certificate” of insurance conveys more than information. This is the ACORD 27, Evidence of Property Insurance, which is used to show the property insured and coverage provided. As indicated by its title, this document is more than a certificate. It provides evidence that insurance as identified has been issued, is in force, and conveys all the rights and privileges afforded under the policy. It does not contain the language stating that it is provided for informational purposes only. Since some courts have distinguished between certificates that include that type of wording and others that do not, its absence could be meaningful should a discrepancy between the ACORD 27 and actual policy be litigated.

As stated previously, most documents within this category have been standardized by ACORD. They are the:

·     ACORD 23, Leased Auto Certificate of Insurance

·     ACORD 24, Certificate of Property Insurance

·     ACORD 25-S, Certificate of Liability Insurance, Simplified

·     ACORD 25-N, Certificate of Liability Insurance, Non-simplified

·     ACORD 27, Evidence of Property Insurance

The ACORD 23 is used to provide information about insurance that is carried on a leased auto. There are special sections for the liability and physical damage coverages that apply. The cancellation clause on this certificate differs from that used in most of the other documents. It states that, if the insurance shown is canceled before the expiration date listed, the issuing company will mail written cancellation notice to the certificate holder. Most of the other documents do not commit to sending cancellation notice. They indicate that the company will only endeavor to mail such notice.

The ACORD 24, 25-S, and 25-N are very similar in their construction. The ACORD 24 provides information on property, inland marine, crime, boiler & machinery, and other first party insurance coverages. It often is used to show lenders that the property being financed or used as collateral is insured for fortuitous loss. The ACORD 25-S and 25-N both provide information on casualty insurance carried, such as general liability, auto liability, garage liability, excess or umbrella liability, and workers compensation and employers liability policies. The 25-S represents policies that follow the Insurance Services Office (ISO) simplified policy format. The 25-N is used for policies that follow the ISO non-simplified format. They show the types and limits of insurance carried for third party damages.

Page 2 of the Acord 25-S states that additional insured status must be endorsed onto the policy. Merely stating on the certificate that the holder is an additional insured does not confer any rights to the holder. In addition, any waivers of subrogation must be included within or endorsed onto the actual policy. A statement on the certificate indicating that subrogation has been waived does not confer any rights to the holder beyond what is provided for in the policy and its endorsements. The final disclaimer on the ACORD 25-S makes it clear that the certificate is not a contract and does not independently change any terms, conditions, or coverage provided for by the policies shown.

These disclaimers are very important because they clearly indicate that the policies control the coverage. As an example, a contract between two parties may require that party B indemnify and hold party A harmless for damages to third parties arising from the work. The contract may dictate that party A be added as an additional insured on party B's CGL policy. An ACORD 25-S certificate may be issued, indicating party A as an additional insured. However, the policy must be endorsed to reflect this in order for the coverage to be in place. Merely stating that party A is an additional insured on the ACORD 25-S does not change the policy. It's also important to keep in mind that exclusions and limitations of coverage may exist on the policy but not be shown on the certificate.

Because of this fact, some certificate holders require that non-standard coverage provisions or their additional insured status be proven by actual endorsement. Even if this type of requirement is agreed upon, there undoubtedly will be a time lapse between when the endorsement is requested and when it is issued, during which the certificate of insurance is the only document available. If a loss occurs during that time period and the policy has not actually been endorsed, the policy still prevails and coverage would be questionable.

As indicated previously in this article, the ACORD 27 does convey the rights and privileges of the policy to the holder. In addition, it states that the company will notify the mortgagee, loss payee, additional insured, or other additional interest shown on the certificate of any changes to the policy that may affect the interest. Written notice of policy termination also will be given to the additional interest.

Some certificate holders may request that some of the standard wording on ACORD certificates be amended. A common example is a request to amend the cancellation clause on an ACORD 24, 25-S, or 25-N form. The standard cancellation clause on these forms reads:

“Should any of the above described policies be canceled before the expiration date thereof, the issuing company will endeavor to mail ______ days written notice to the certificate holder named to the left, but failure to mail such notice shall impose no obligation or liability of any kind upon the company, its agents or representatives.”

Holders often ask that the words “endeavor” and “but failure to mail such notice shall impose no obligation or liability of any kind upon the company, its agents or representatives” be stricken from the cancellation clause. This is requested in an effort to require the insurance companies named to send cancellation notification to the holder. Other changes may be requested and obtained with varying degrees of success. In addition, it is difficult to predict how courts will interpret the affect of such alterations in discrepancies between the policy and the certificate.

Some entities may draft their own certificate of insurance forms and require that they be used by corporations who want to contract with them. As with any manuscript documents, it is impossible to predict how the wording will be interpreted by the courts. It may be more advantageous to draft contractual language more carefully and then rely on standard certificate formats to provide information on how the insurance clauses in the contract are being followed.

As can be expected, many courts have interpreted the legal standing of different types of certificates. Common issues are what type of certificate format and disclaimers are used and whether an insurance company, agent, or broker issued the document.

In the 1974 case of United States Pipe and Foundry Co. v. USF&G, 505 F. 2d 88, the appeals court affirmed the district court's decision that a certificate of insurance “does not constitute a contract between the lessor and the insurer.” The court stated that U.S. Pipe was not a named beneficiary in the insurance policy in question and, because of that fact, any coverage would have to arise from the certificate itself. However, since the certificate is not a contract, no coverage could be inferred for U.S. Pipe.

Following this same type of reasoning, the New York Appeals Court affirmed in Penske Truck Leasing Co., L.P., v. Home Insurance Co., 251 A.D. 2d 478 (1998), that Penske's reliance on information on a certificate of insurance was misplaced. As the court stated, “It is well settled that a certificate of insurance with the aforementioned disclaimer language is insufficient, by itself, to establish that the certificate holder is insured. A certificate of insurance is evidence of a contract for insurance, but is not conclusive proof that the contract exists and not, in and of itself, a contract to insure.”

In Pekin Insurance Co., et al, v. American Country Insurance Co., 213 Ill. App. 3d 543 (1991), the Illinois appellate court affirmed that a policy exclusion voided coverage even though a certificate was issued to a subcontractor engaged in the type of work that was excluded on the policy. The plaintiffs claimed that, because the certificate indicated the subcontractor was an additional insured on a policy that provided CGL coverage for the project, but the policy excluded coverage, there was a conflict between the policy and the certificate. The plaintiffs contended that the discrepancy should be resolved in their favor. The court differentiated this case from others that upheld the plaintiff's line of reasoning because of specific wording on the certificate. It stated the certificate was “issued as a matter of information only” and conferred no rights upon the certificate holder and “does not amend, extend or alter the coverage afforded by the policies below.” The cases cited by the plaintiff did not contain this language, which distinguished them from the case under appeal.

Another area that courts have highlighted in similar cases is whether the insurance company or an authorized representative—such as an agent or broker—issued the certificate. The court ruled in Criterion Leasing Group and Hartford Insurance Group v. Gulf Coast Plastering & Drywall, Continental Loss Adjusting Service, Inc., and Robert Bruce, 582 So. 2d 799 (1991), that information on a certificate of insurance issued by Hartford Insurance Group prevailed because the certificate was a promise by Hartford to provide workers compensation coverage to the coinsureds. In Bucon, Inc., v. Pennsylvania Manufacturing Association Insurance Co., 151 A.D. 2d 107 (1989), an insurer was prevented from denying coverage after issuing a certificate of insurance. The court reasoned that the insurer, itself, had issued the certificate. In addition, the insurer had reissued the certificate after the insured requested that the name of a sub-contractor be added as an additional insured to comply with an agreement with the contractor.

In the 1992 case of James Dumenric v. Union Oil Co. of California, 238 Ill. App. 3d 208, the court ruled that Aetna could not deny insurance coverage to Union even though coverage had been suspended prior to the date of the claim. In this example, an agent of Aetna had issued a certificate of insurance to Union to illustrate insurance coverage of a sub-contractor (Mid-State Mechanical Corporation), which was insured at the time by Aetna. When a claim was filed based on information on the certificate, Aetna denied coverage because it had not insured Mid-State at the time of the accident. Coverage had been suspended during the policy term shown on the certificate. The court said that Aetna could not disavow coverage because the certificate had been issued by one of its agents and that, as such, the agent had bound Aetna to provide the insurance coverage to the certificate holder. The judge further held that, if the agent exceeded his authority, Aetna should proceed against him but could not deny coverage.

There are a number of vendors that offer automated certificate of insurance management systems. In addition, some corporations have posted general information about their insurance coverage on their web sites. Some of these web sites may be freely accessible, while others may be accessed only by authorized users. These methods are attempts to interject more efficient methods of issuing corporate certificates as well as tracking the certificates that are provided by its vendors and contractual partners. Since the standard certificates of insurance do not, in themselves, convey any contractual rights to the holders, electronic delivery methods may prove to be increasingly prevalent.

For examples of Acord forms, see ACORD 23, Leased Auto Certificate of Insurance, January 1999; ACORD 24, Certificate of Property Insurance, January 1995; ACORD 25-S, Certificate of Liability Insurance, July 1997; ACORD 25-N, Certificate of Liability Insurance, January 1995; ACORD 27, Evidence of Property Insurance, April 2004.