07 Apr Does an Additional Insured Receive Advance Notice of Cancellation?
How do agents get in trouble? Let me count the ways. Agents often get into trouble by agreeing to a responsibility that is not their obligation. Agents will often assume the carrier’s obligations.
In my course, “Common Procedural Mistakes That Land Agents in Court,” I mention that failure to provide notice of cancellation is one of those mistakes. It is not the agent’s responsibility to provide such notice, unless he or she agrees to do that. A recent question from an agent addressed this issue.
Question: If a certificate holder is shown as an automatic additional insured (AI) under a blanket AI endorsement, as required by the contract, and the coverage cancels, does the agent need to notify the certificate holder of the cancellation? Since the AI isn’t listed in the policy, they won’t receive notice from the company.
Answer: The IL 00 17 Common Conditions form states that if the company cancels the policy, the first named insured (FNI) will receive advance notice of cancellation. The FNI will receive 10 days’ notice for non-payment cancellations and 30 days’ notice for other cancellations.
The ACORD 25 Liability Certificate of Insurance says, “SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION DATE THEREOF, NOTICE WILL BE DELIVERED IN ACCORDANCE WITH THE POLICY PROVISIONS.” In other words, an additional insured will not receive a cancellation notice unless the company has agreed to do that by endorsement. Like a text message, the disclaimer is basically shouting at the agent and the additional insured.
Unless the endorsement is a proprietary form that states otherwise, the automatic status additional insured endorsement does not provide advance notice of cancellation. If the insured signs a contract that requires advance notice and the agent is aware of that requirement, it is the agent’s responsibility to get the policy endorsed. If the agent was not notified of the requirement, there is no responsibility to provide notice.
Keep in mind the policy is a contract between the company and the named insured. The agent is not a party to the contract and its terms and conditions. If the agent agreed to provide notice of cancellation to the certificate holder and did not notify the company, then the agent assumed the company’s responsibility. If the policy has been cancelled, the agent must provide notice. Any loss that occurs during the period after the cancellation date and the last day of the notice is the agent’s responsibility and will create an E&O exposure for the agency.