18 Feb Certificate of Insurance – Not a Harmless Document
Going back to 1986 when the E&O Plus program started, allegations involving improper execution of certificates have generated roughly 7 percent of all E&O claims and that trend continues today. This shows that a Certificate of Insurance is not the harmless document many believe it to be. For this reason, every agency should have a document that details the procedures that need to be followed.
Some key issues to be aware of:
- Authority to issue a certificate. The execution of certificates is a serious undertaking. The agency procedure document should reference the person responsible for handling the client request and what should / should not be noted on the certificate. It is also always best to have a second set of eyes reviewing the certificate to verify accuracy. A recent number of E&O claims involve certificates being issued without the required coverage being bound. Agencies should have a procedure that requires verification of coverage before a certificate is issued.Regarding issuing certificates showing business written in the surplus lines marketplace or through a wholesaler, these need to be handled by the wholesaler since they are technically the agent of record. For agencies that desire to issue certificates involving E&S business, the agency should secure written authorization from the wholesaler. The authorization should detail what the expectations are of each party.
- What limit should be shown? This is a common question. For example, you have a contracting risk and the contractor has a $1 million GL with a $5 million umbrella. The contract for the job requires the $1 million GL, but only a $1 million umbrella. What umbrella limit should be shown on the certificate? It is heavily suggested that the full $5 million limit be shown. Failure to do so could expose the agency to allegations of providing an incorrect certificate. Even if the client only wants the $1 million shown, it is suggested to show the full limits.
- Does a certificate holder and address need to be shown on every certificate? It is not uncommon for some clients (possibly contractors) to ask for a batch of certificates where the coverage is shown but there is no certificate holder. This should be avoided as it creates the potential for the client to have certificates on hand even if their coverage was no longer in effect. Bottom line, agents should not issue blank certificates.
- Clients requiring a large number of certificates. If you have clients that require a significant number of certificates, consider developing a certificate checklist that details on every account exactly what the expectations are based on the account specs / coverage provisions. It is important that this document be reviewed annually to verify accuracy.
- Blanket additional insured. There is a common (but incorrect) belief that Blanket Additional Insured means all additional insureds are covered. It is often required that a contract is in place, so be sure to review the policy requirements of additional insureds under a blanket form. This would make for a great educational session for the appropriate staff members.
Bottom line, certificates need to be accurate. The details / procedure to ensure an accurate certificate should be in writing and part of the agency manual.