Certificate of Insurance Language Has Changed
Keeping track of insurance coverage as an additional insured - a complex undertaking under normal circumstances - has gained yet another layer of complexity. The "notice of cancellation" language on many popular certificates of insurance has changed - increasing the likelihood that certificate holders will not know if the policies under which they should be insured have been cancelled. This advisory will discuss how certificate of insurance language has changed, the exposure the new language creates, and some strategies that additional insureds might consider to reduce the likelihood of being surprised by cancellation or nonrenewal.
People often mistakenly rely on certificates of insurance, rather than a copy of the actual policy, to show they have insurance coverage in place, either as a named insured or an additional insured. Certificates of insurance generally identify the type of insurance coverage provided, the policy number, the policy period, the limits of coverage, the insurer providing the coverage, and the certificate holder. Previously, certificates of insurance also included a provision concerning notice in the event of cancellation. Recent amendments to popular certificate forms produced by ACORD (the Association for Cooperative Operations Research and Development), however, have significantly diminished the protection that certificates of insurance previously afforded with respect to notice of cancellation.
Prior editions of the ACORD certificates contained assurances that the certificate holder would receive notice if an insurance company cancelled the policy prior to its expiration, stating:
Should any of the above described policies be cancelled before the expiration date thereof, the issuing insurer will endeavor to mail __ days written notice to the "certificate holder" in the event the insurance policy was cancelled.
ACORD recently eliminated the notice requirement from the cancellation text. The revised certificates now contain the following language in its place:
Should any of the above described policies be cancelled before the expiration date thereof, notice will be delivered in accordance with the policy provisions.
As such, depending on the notice requirements in the particular insurance policy, many certificate holders, including additional insureds, will not receive notice of cancellation. This change could result in significant consequences in the event a covered loss occurs after an unknown cancellation of the policy.
What can you do to minimize the risk that you might be caught in this situation?
- Contractually require the insured party to provide immediate notice to the certificate holder if the insured receives any notice of cancellation or nonrenewal from its insurance company. For large or important downstream contractors, put in place a procedure to confirm the downstream contractor's insurance remains in force both during and after completion of the project.
- Contractually require the insured to forward to you a copy of the insurance carrier's notice of changes in the policy conditions or notice of cancellation within __ days of receipt.
While neither option is a perfect solution, each will increase the likelihood that you receive notice of cancellation and shift to the insured the risk of a failure to notify you of cancellation.
- Contractually require all downstream contracting parties to provide you with updated certificates of insurance every 30 days or as part of the backup for their applications for payments. While this may increase your administrative burden, it should provide you with notice of changes or cancellation in coverage, which could save you money in the long run.
- If the insured has a manuscript policy, or if the insured is a large client of the insurance company, request the insured to ask its insurance company to state expressly, in the policy itself, that the certificate holder will receive the same notice rights as the named insured. This is the safest choice; however, it may not be easy to accomplish.
- Contractually require the insured to include a verbatim recitation of its policy's actual cancellation language on an ACORD Form 101 Additional Remarks Schedule. This form is used as an attachment to any ACORD form when more space is required for additional remarks or comments. Although this may not provide you with notice of cancellation or nonrenewal, this will ensure that you have an accurate understanding of who is entitled to notice of cancellation under the policy.
- Contractually require the insured to obtain an insurance certificate that does not include the new ACORD notice language and instead requires __ number of days notice of cancellation. Be aware, however, that even if you can procure a certificate containing this language, it will not change the language of the policy itself, and insurers may not stand behind the revised certificate. For example, ACORD takes the position that the old certificate form should not be used. Accordingly, it may be difficult to obtain a certificate containing the old language.
If you have questions, be sure to contact your insurance broker, a knowledgeable insurance agent, or an insurance coverage attorney.
Attorneys in the Sherman & Howard Insurance Recovery Practice Group
are available to assist with these and other issues.
Sherman & Howard has prepared this advisory to provide general information on recent legal developments that may be of interest. This advisory does not provide legal advice for any specific situation. This does not create an attorney-client relationship between any reader and the firm. If you want legal advice on a specific situation, you must speak with one of our lawyers and reach an express agreement for legal representation.
©2011 Sherman & Howard L.L.C. February 24, 2011