CERTIFICATES OF INSURANCE: BEST PRACTICES
by Curtis Pearsall
Certificates of insurance have been around for a long time. So why, after all these years, are they causing such an uproar? At the recent Network of Vertafore Users (NetVU)—formerly The AMS Users’ Group—in Nashville, I was fortunate to work with Joyce Sigler, vice president of Jones & Werner, an independent agency in Fairlawn, Ohio, in presenting a program titled “Best Practices for Certificates.” During this session, it became quite evident that the handling of certificates was an issue front and center in agents’ minds.
According to industry statistics, the handling –or improper handling –of certificates of insurance accounts for 2% to 4% of E&O claims. Although this isn’t a huge percentage, it’s higher than it should be.
As you probably know, a certificate of insurance provides a snapshot at one point in time; it neither modifies coverage nor changes the terms of the contract.
ACORD has come out with a new version of the ACORD 25 form that’s creating anxiety among a number of agents.
Based on feedback from the 200 or so agents at the Nashville session, some certificate holders might reject both the current ACORD 25 form and the new version. Many entities don’t like the new form.
As Joyce Sigler commented at the NetVU session, “They don’t understand they are given ‘rules’ for their business by their corporate legal and the new form doesn’t fit into their rules yet. Folks are saying, ‘I don’t know what this or that means. I just know it has to be exactly like our sample.’ It’s a sticky situation because the current form is being rejected and because some states have issued a mandate that the new form be used.”
Bottom line: if the state has approved the new form, it must be used.
There are a number of changes with this new form – such as eliminating, the “endeavor” wording. In the long run, this should be beneficial because it eliminates the “requirement” of sending out cancellation notices.
The new form reinforces the need for agents using certs to follow these “best practices:”
Best Practices to consider:
- Have a written procedure for the handling/issuance of certs. This should address all pertinent issues, including how to handle requests for adding additional insureds when the policy doesn’t provide this coverage. Consider identifying a specific number of staff who can handle this responsibility, and make sure they receive the necessary training.
- Audit completed certificates periodically to ensure that they are done in accordance with established agency procedures. If you’re issuing certificates on behalf of E&S carriers with which you have placed business, understand that unless you have an E&S license and are acting as the wholesaler, you are technically not the agent. Get approval from your E&S wholesaler to issue these. Many agents issue a “draft” and send it to the wholesaler for approval. This is acceptable.
- Issue the certificate from your system. This will ensure that the producer, named insured(s), carrier, policy number(s), policy dates, etc., are correct. If you still produce certificates manually, as your software is updated to the new ACORD 25 form, take advantage of technology – it’s a great time saver that will help reduce (but not eliminate) the potential for mistakes.
- Use the Additional Insured column as much as possible to help tie additional insureds into the right coverage.
- Don’t issue a certificate with additional coverages notes (such as Additional Insured) if the policy doesn’t reflect this coverage. If you need to get permission from the carrier, get it in writing before you add this to the certificate.
- Don’t type this year’s certificate based on last year’s information. Have a procedure to update the data—it might well have changed!
Questions and Answers
Several excellent questions at the conference warranted additional research:
- When an agent issues a certificate of insurance, is he or she legally obligated to list all applicable policies? For example, do they list the primary and all excess policies? I could not locate any specific legal precedent while researching this issue. It makes sense to list only those coverages applicable to the request for the cert. For example, when sending a certificate to a general contractor, you would probably need to list only the Workers Compensation, Liability and Umbrella coverages, not property. I d also suggest that an agent include all applicable policies (primary and excess) unless the request for the cert asks only for limit/coverage verification up to a certain limit.
- When an agent issues a certificate but the excess policy excludes certain coverage (example: pollution), should the agent list the excess policy? If the certificate request is to show proof of Pollution coverage, the agent should not indicate on the cert any policies that exclude this coverage. Listing the policies although the coverage was excluded (even with a notation) might confuse the certificate holder.
- If you need to issue a cancellation notice (some carriers are putting this on the agent’s shoulders), should you reissue the certificate and indicate “cancelled” on it? If so, should you include the limits? I don’t believe I’ve ever seen a certificate reissued to show that coverage has been cancelled. I suggest sending a copy of the cancellation notice or, if you’re going to use the certificate, clearly mark it CANCELLED and send it out.
- What should I do when I’m unable to furnish the certificate in the form requested by the certificate holder because the carrier won’t allow it? In these situations, Joyce Sigler of the Jones &Werner agency recommends establishing an agency-standard wording, such as: “We’re pleased to attach an industry-standard ACORD certificate of insurance issued on your behalf for the captioned client. The insurance company will not execute, and would not authorize our agency to execute, the special certificate of insurance you requested. Upon your request and if authorized by our insured, we’ll be happy to provide you with certified copies of all Liability insurance policies in force for our insured that are relevant to your contract.”
- Does it make a difference who signs the certificates? Yes. Make sure that the person executing the certificate is licensed in your state. If you have clients who do business in another state, the person signing the certificate must be licensed there.
In summary, develop an agency procedure involving the issuance of certificates and educate your staff on this important procedure.
Curtis Pearsall, CPCU, AIAF, ARM, CPIA, is president of Pearsall Associates, Inc. (Whitesboro, NY), a risk-management consulting firm that specializes in helping agents protect themselves against E&O claims. To contact him, call (315) 768-1534; e-mail: [email protected]; visit www.pearsallassociates.com; or blog: www.agentseotips.com. Reproduced, with permission, from Rough Notes magazine.