Don't treat certificates of insurance too lightly

Rough Notes, Apr 2001 by Malecki, Donald S

Establish better risk management practices for keeping certificates of insurance and insurance policies in synch

Standard certificates of insurance have been in use since 1976. This was when the organization then known as Agency Company Organization for Research and Development (ACORD) introduced the first standard insurance certificate. Because the certificate has been in use for more than 25 years, it is probably safe to say that most people employed in the insurance and risk management industries understand its purpose.

Briefly, the certificate is the leading method for verifying certain information about one or more insurance policies, as of the date the certificate is issued. Every once in a while certificates are updated by ACORD with additional types of information. In general, certificates inform those who read them-as well as their recipients (certificate holders-of the type of coverage provided, (e.g., general liability, automobile liability, garage liability), the policy number, its inception and expiration dates, limits applicable, and what insurer is providing the coverage.

Probably the safest method for verifying insurance coverages would be to obtain a certified copy of the policy. However, insureds who must provide proof of insurance often are reluctant to relinquish their policies to strangers. Even if they are not opposed to having a certified copy issued, it might take months to get one, considering how long it takes to get polices issued these days. The delay would likely defeat the very purpose for requesting a certified copy. That is the reason the certificate is so popular, particularly since the authorized representative includes the agent of record.

Evidence of property coverage

Information about property insurance can be verified through the issuance of a separate ACORD document referred to as Evidence of Property Insurance Form. Sometimes the ACORD certificate used for verifying various liability coverages is used to verify property coverages, instead of the ACORD Evidence of Insurance. This often is done to save time.

It is not recommended that those issuing certificates do this because the Evidence of Insurance provides important information about property coverages that is not always inserted into the certificate of insurance, as well as information that the authorized representative completing the form needs to know.

For example, the Evidence of Property Insurance Form lists the appropriate causes of loss form applicable, i.e., basic, broad, or special forms; the applicable deductible and the amount of insurance. It also reserves space for identifying any applicable mortgagee, loss payee, or any other interest who needs to be added. Many people requesting proof of property insurance would want this type of information.

It also enables those issuing this form to acquire this information if they don't already have it. It is not unheard of, for example, for a property policy to be issued without listing the financial institution as the mortgagee, and to be discovered at the time when evidence of coverage is being requested.

The Evidence of Property Insurance Form, unlike the usual certificate of insurance used to verify liability coverages, stipulates in no uncertain terms that should the policy be terminated, the insurer will give the additional interest identified in the certificate written notice. The insurer also will notify these parties of any changes that would affect that interest.

The reason the Evidence of Property Insurance Form is more definitive in providing notice than the certificate for liability coverages is that the insurer is likely to have a better handle on who the additional interests are. With many insurers now issuing blanket, automatic additional insured endorsements, it would be next to impossible for insurers to determine precisely who the additional insureds might be. In addition, certificates are issued in "bundles," and often are shoved into drawers-or lost-and are not reviewed unless a problem arises.

Caveats of certificates

Considering how long certificates of insurance have been in use, one would think that the preamble of the standard ACORD certificate would be understood by now. In effect, it states that it is for informational purposes only, and that it does not amend, extend or alter the coverage afforded by the policies listed. Nevertheless, arguments over certificates persist.

One of the common areas of dispute has to do with notice of cancellation. The standard certificate states that if any of the described policies is canceled before the expiration date, the issuing company will endeavor to mail a 30-day written notice to the certificate holder. However, any failure to do so will not impose any obligation or liability on the company, its agents or representatives.

Sometimes the certificate of insurance is amended to substitute the 30-day written notice with 60 or 90 days, the notice is extended to encompass material changes, and the word "endeavor" is crossed out.