Certificate of Insurance and Status of Additional Insured

 

February 15, 2016

 

The insurer brought an action against the company claiming to be an additional insured under the commercial general liability policy issued to a painting contractor, seeking a declaration that it was not obligated to provide coverage to the company. This case is Cincinnati Insurance Company v. Vita Food Products, 808 F.3d 702 (2015).

 

Cincinnati Insurance Company issued a general liability policy to Painters USA for a one-year period beginning January 15, 2011. The policy allowed the insured to add an additional insured to the policy by an oral agreement, provided that the oral agreement preceded an occurrence and that a certificate of insurance showing that person or organization as an additional insured has been issued. No permission from the insurer was required.

 

While the policy was in force, Painters was hired by Vita Food Products to do painting on Vita's premises. According to Vita, Painters agreed orally to add Vita as an additional insured. During the painting job, one of Painters' workers was injured and sued Vita for negligent maintenance of its premises; this happened soon after Painters began doing the work for Vita and before there was any written confirmation of the oral agreement. Cincinnati filed a declaratory judgment action to obtain a declaration that Vita was not covered by the policy issued to Painters.

 

Painters had requested the certificate of insurance within hours of the accident to the workers and an insurance agent for Cincinnati had issued it to Vita the next day. The insurer claimed in its declaratory judgment action that the certificate had come too late and the district court agreed. That court said that until the certificate was prepared and signed, the additional insured (Vita) was not actually insured. This appeal followed.

 

The United States Court of Appeals, Seventh Circuit, said that the reference in the insurance policy to a certificate of insurance was ambiguous. It could, as the insurer argued, be regarded as a prerequisite to coverage of the additional insured, but the court said, it could equally be regarded as intended merely to memorialize the oral agreement, in which event the date of the certificate would not matter. A third possibility, said the court, was that the oral agreement must be memorialized in writing before the insured can file a claim. The court found that the oral agreement had to precede the accident that gives rise to the insured's claim, but there is no indication of when the certificate of insurance has to be issued.

 

The court decided that the reference to the certificate of insurance was ambiguous and an ambiguous insurance contract is interpreted against the drafter of the policy, the insurer.

 

The insurer argued that requiring the certificate before a liability-triggering event occurs is necessary to protect the insurer against fakery by the insured. However, the court pointed out that the certificate was issued by an insurance agent of behalf of Cincinnati Insurance. The agent would not be willing to backdate a certificate of insurance ate the insured's request, so requiring that the certificate precede the accident would provide extra protection against fakery.

 

The court added that a certificate of insurance is not a contract and does not amend, extend, or alter the coverage afforded by the insurance policy. Were the certificate to be a precondition to insuring Vita against liability for the accident, it would amend the coverage provided by the policy, and this was not acceptable to the court.

 

So, in summary, the court ruled that if Vita can prove that there was an oral agreement to add it as an additional insured prior to the accident, it will be entitled to coverage under the Cincinnati policy. The judgment of the district court was reversed and the case remanded.

 

Editor's Note: The U.S. Court of Appeals, Seventh Circuit, rules that an oral agreement is a valid contract and in this instance, the oral agreement was sufficient to add an additional insured to the policy. In addition, the court affirmed that a certificate of insurance is not a contract, only an instrument of information. The certificate does not present itself as a precondition to coverage and its issuance date, in this instance, did not affect coverage for the additional insured.