22 Sep An Interesting Certificate Question
The COVID-19 pandemic has certainly created its share of issues, with business interruption coverage probably getting the most attention. However, there are other scenarios that have occurred which have posed some interesting discussion.
Recently, I received an email from an E&O Plus insured asking about how to handle a certain certificate of insurance (COI) issue. The client had secured a $2 million umbrella and subsequent certificates had been issued noting the $2 million umbrella limit. The client’s construction business had been affected by the COVID-19 pandemic, prompting the client to request that the agency reduce their umbrella limit to $1 million, which the agency did. The question posed was, “Does the agency owe a duty or obligation to issue a new COI with the new, reduced limit?”
Quite honestly, this is not an issue I have encountered before and in speaking with others, the issue was new to them as well. It was decided to consult with Audrey L. Shields, Esq. of the firm of Golden, Rothschild, Spagnola, Lundell, Boylan, Garubo & Bell, P.C. The following is her response:
“Based on this scenario, we do not believe that the broker has any obligation to issue the COI. The broker’s obligation was to obtain the coverage requested by the client. As you know, the standard of care applicable to insurance brokers and the duty a producer owes to its insured (in New Jersey and most other jurisdictions) includes:
1) Purchasing the insurance they have been requested to procure, or advising the insured of their inability to do so
2) Obtaining coverage which is not void
3) Obtaining coverage which is not materially deficient
4) Obtaining the coverage undertaken to be supplied at the requested limits
See Rider v. Lynch, 42 N.J. 465 (1964)
In this scenario, that has been accomplished. Absent a specific request for another COI, the broker does not have any duty to affirmatively issue another COI. Further, the client made the request for the reduction of coverage, and is aware that the coverage limit has been decreased. Thus, there would be no surprise to the client regarding coverage limits if an updated COI was not issued.
The only party that may have an issue with a COI not being reissued is the third party. Indeed, the third party may have entered into an agreement with the client, which required the client to possess a certain amount of coverage. The reduction in coverage limits may come as a surprise to the third party; however, the third party is not a client of the broker, and thus the broker owes no duties to the third party. To the extent that the third party may claim some obligation owed due to its status as a third-party beneficiary, it would be the broker’s position that they were simply acting at the direction of the client. Accordingly, any issues regarding the limitation in the coverage amount, or the failure to provide the third party with another COI, rests solely between the client and the third party.
While there may be no obligation to reissue the COI, we do believe it would be prudent for the broker to check with the client (in writing, of course) and see if they would like a COI reflecting the new coverage limits to be issued. This may serve to protect all parties involved.
As a final caveat, if the client initially requested for the broker to obtain coverage, with the coverage limits subject to an agreement between the client and the third party (e.g. the client entered into a Lease with third party, and agreed to have $2 million in liability coverage, with the third party as an additional insured), and the broker is aware that client is now in breach of the contract due to the reduced coverage limits, then we would advise the broker to immediately alert the client to avoid any potential issues in the event of a loss.”
Special thanks to Audrey for her very detailed and thorough analysis.