Agent's feedback

Rough Notes, Aug 2002

Must agents inform certificate holders when a policy is cancelled?

I enjoyed Don Malecki's "Risk Management" column titled "Take a Close Look at Updated ACORD Certificate" that appeared in the March 2001 issue of Rough Notes magazine. In addition to his comments concerning use of ACORD certificate 25-S (7/97), I am interested in what his thoughts might be regarding the responsibility of agents to notify the holder of a certificate of insurance in the event of a policy's cancellation. I am aware of the disclaimer on the certificate of insurance in question.

-Roscoe A. Bolton

Alexander & Bolton, Inc.

Alexandria, Louisiana

Author's response:

I am not a lawyer and my response is not meant to be taken as legal opinion. My comments, as requested, are simply observations based on my 42-plus year career in the insurance and risk management fields.

It is difficult to be definitive in answering this question because it depends on the fact pattern. Today, more so than ever, agents, as authorized representatives, are issuing the certificates, and they should know that certificates do not guarantee notice to the certificate holder of cancellation. For a number of years now, the ACORD certificate has contained the statement: "Should any of the above described policies be cancelled before the expiration date thereof, the issuing insurer shall endeavor to mail _ days' written notice...." The word "endeavor" is defined in The American Heritage Dictionary, Second College Edition to mean "to make an earnest attempt." It is not a guarantee.

If the issuer of the certificate deletes reference to the word "endeavor," it would then behoove the issuer to make sure the certificate holder receives notice because a representation is being made that notice will be given. However, since the ACORD certificate does not amend, extend or alter the policies as identified, it is also necessary that the policies as listed also be amended by endorsement to reflect that notice will also be given to the certificate holder. The commercial liability policy, for example, gives that privilege of notice solely to the first named insured. As a general rule, unless the underwriter is willing to amend that notice provision by endorsement, the insurer should be under no obligation to provide notice even if the word "endeavor" on the certificate has been amended.

So when an agent crosses out the word "endeavor," he or she should remember that it is the insurer that has the responsibility for issuing notices of cancellation. The agent, therefore, must see to it that the certificate holder is notified, particularly when a contract calls for notice and a representation is made by the agent that notice will be given.

Agents should be aware, though, that more insurers than one might imagine are checking certificates, rejecting them when necessary, issuing endorsements, and underwriting from them. In fact, it is not unheard of for insurers to view information inserted on certificates as requests for policy amendments! This practice is dangerous to the insurer, but important to the agent, and issuer of certificates because it could be used by an agent as a defense if it is named in a legal action by a certificate holder who alleges failure to notify in the event of cancellation to the detriment of the certificate holder. Rest assured, agents will be named in these suits along with everyone else.

For example, if an agent issues a certificate and crosses out the word "endeavor," the agent may, in effect, be requesting that the policy in question be amended by endorsement so as to give the certificate holder the equal privilege of notice traditionally given to named insureds or first named insureds. If the underwriter misses that point, in situations where underwriters view certificates as requests for policy amendments, the agent may have a possible defense.

Mr. Bolton does not say who issues the certificates and whether they are being amended to make representations about notice, nor what the practices of insurers are in relation to wanting copies, underwriting from them, etc. Let's therefore assume that the agent issuing the certificate crosses out the word "endeavor," keeps a log and sends the certificate to the insurer (often in bulk) where they are not reviewed by underwriters, and/or the insurer makes no practice of viewing certificates as endorsement requests.

There is no denying that, unless the policy(ies) is amended so as to reflect that notice of cancellation will be given to the certificate holder, it would be in the best interest of the agent to notify the certificate holder or his or her client, in writing, to do that, despite the certificate's remaining part of the disclaimer reading that "but failure to do so shall impose no obligation or liability of any kind upon the insurer, its agents or representatives."

If, on the other hand, the certificate wording is not amended, but the agent knows that his or her client is agreeing by contract to notify the certificate holder of cancellation, non-renewal, material change, it might be worth the service of the agent to notify his or her client to inform the certificate holder of that fact.