General Description and Issues

 

Certificates of insurance are commonly issued on forms that have been standardized by ACORD Corporation (Association for Cooperative Operations Research & Development).

 

Information shown on these certificates includes the following:

 

·     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

·     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 affirmatively or negatively 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 how 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 has impacted such cases.

 

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.

 

Why Certificates Are Used

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 subcontractors 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 is often 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 a valid certificate is produced.

 

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. Mortgagees and other lenders commonly require it 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.

 

Types of Certificates of Insurance

As stated previously, most documents within this category have been standardized by ACORD. The following is a list of some commonly used ACORD certificates of insurance:

 

·     ACORD 23, Vehicle or Equipment Certificate of Insurance

·     ACORD 24, Certificate of Property Insurance

·     ACORD 25, Certificate of Liability Insurance

·     ACORD 27, Evidence of Property Insurance

·ACORD 28, Evidence of Commercial Property Insurance

 

The ACORD 23 is used to provide information about insurance that is carried on vehicles or equipment. There are special sections for the liability and physical damage coverages that apply.

 

The ACORD 24, Certificate of Property Insurance, is used if the certificate of insurance receiver wants verification that property coverage exists on a policy and has no direct interest in the policy. For personal lines or small commercial policies, the ACORD 27, Evidence of Property Insurance, is used if the certificate of insurance receiver has a verifiable insurable interest in the policy—such as mortgagees or lenders. The ACORD 28, Evidence of Commercial Property Insurance, should be used for property insured under a commercial lines policy with a large limit and the lender requires specific detailed coverage information.

 

The ACORD 25 provides 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 ACORD 25 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 form also clearly states 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 important because they 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 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 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.

 

Due to this fact, some certificate holders require that nonstandard 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.

 

The ACORD 27 and 28 are also similar in their construction. The ACORD 27 provides information on property, while the ACORD 28 provides more specific information on the following: business income, rental value, blanket coverage, terrorism coverage, fungus coverage, replacement cost, agreed value, coinsurance, equipment breakdown, ordinance or law, earth movement, flood, wind/hail, and permission to waive subrogation. ACORD 27 and 28 both contain cancellation clauses.

 

Altering Standard Certificates

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. The standard cancellation clause reads:

 

Should any of the above described policies be cancelled before the expiration date thereof, notice will be delivered in accordance with the policy provisions.

 

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.

 

Nonstandard Certificates

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.

 

Legal Implications

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 United States Pipe and Foundry Co. v. USF&G, 505 F.2d 88 (5th Cir. 1974), 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., 674 N.Y.S.2d 400 (1998), that Penske's reliance on information on a certificate of insurance was misplaced. 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. v. American Country Insurance Co., 572 N.E.2d 1112 (Ill. App. 1991), the 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 v. Gulf Coast Plastering & Drywall, 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., 547 N.Y.S.2d 925 (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 subcontractor be added as an additional insured to comply with an agreement with the contractor.

 

In Dumenric v. Union Oil Co. of California, 606 N.E.2d 230 (Ill. App. 1992), 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 subcontractor (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.