1. E&O Risk Management: Meeting the Challenge of Change
Certificates of Insurance

2. INTRODUCTION
While there are a number of issues that can create E&O claims, one of the most common errors made involves agencies using the certificate of insurance as a way to add additional insureds without formally contacting the carrier to add them by endorsement
E&O Issues with Certificates of Insurance

3. CERTIFICATE What is a certificate of insurance?
Informational snapshot only
It is for general informational purposes only and confers no rights
It is subject to all of the terms and conditions of the various policies shown
E&O Issues with Certificates of Insurance

4. CERTIFICATE What isn’t a certificate of insurance? It does not:
extend any contractual rights to the holder not provided by the policy
represent compliance with any contracts entered into by the insured with others
amend, extend or alter coverages or terms afforded by the policy
E&O Issues with Certificates of Insurance

5. E&O EXPOSURE Why the increase in E&O exposure:
Increased demand from third parties for certificates and additional insured status
 Increased complexity of certificate and related documentation (agent affidavits, compliance checklists, etc.) requests
 Increased frequency leads to routine which leads to complacency in vigilantly reviewing requests
E&O Issues with Certificates of Insurance

6. E&O EXPOSURE Why the increase in E&O exposure:
Lack of agency staff qualifications for more complex requests, particularly requests for specific verbiage on certificates
 Increased pressure from insureds and third parties to issue misrepresentative certificates
 Improved litigation success focused on claims of fraud and detrimental reliance
E&O Issues with Certificates of Insurance

7. Certificates of Insurance Should You Be Concerned?
2009 E&O Data
42% AI missing/wrong
24% misrepresentation
17% nonexistent coverages
Corroboration
City of Atlanta survey
Agency consultant review
Florida agency study
AI endorsement not added $180,000
Blanket AI endorsement $445,000
4,000 bogus certificates $10,290,000
$150 MILLION claim?
Average COI claim is $50,000
City of Atlanta survey
20% of COIs indicated policies that did not exist
50% of COIs lacked AI endorsements
Consultant file review in one agency
42% of COIs showed AI endorsements that were never ordered
Florida agency 11-month study
90% error ratio
40% of COIs with errors significant enough to pose an E&O
E&O Issues with Certificates of Insurance

8. Certificates of Insurance Always Use ACORD Forms
ACORD’s licensing agreement requires new form editions to be used no later than one year following publication
This may require upgrading agency management systems
Never issue “blank” certificates that do not show certificate holders
E&O Issues with Certificates of Insurance

9. Certificates of Insurance Requests for Specific Language
Contractual insurance requirements
Description of Operations verbiage
Review ACORD FIG explanation
Do not “quote wording from a contract”
Agent affidavits or opinion letters
Compliance checklists
Do not paraphrase or summarize policy terms
The ACORD Forms Instruction Guide (FIG) entry for “Description of Operations” says nothing about adding comments regarding AIs, subrogation waivers, cancellation notice, etc.:
Description of Operations / Locations /Vehicles
As used here, records information necessary to identify the operations, locations and vehicles for which the certificate was issued.
See attached Pages 6-7 from seminar manual for language examples
E&O Issues with Certificates of Insurance

10. Certificates of Insurance Cancellation, et al.
COIs often address CGL, auto, WC, and other policies that might have varied termination and change conditions
ACORD forms now refer the holder to the policy forms for cancellation, nonrenewal and material change terms
E&O Issues with Certificates of Insurance

11. Certificates of Insurance Online Certificate Systems
Often marketed to third parties based on funding by insurance agents who pay entry and access fees
Agent may be forced to use system or lose customer
Agency has no control over entered information
No permanent copy for agency management system
May result in policy misrepresentation in violation of the law
May violate agency/company agreement
DOO field could be entered by the insured on one system
AI information could be added by certificate holder on another system
E&O Issues with Certificates of Insurance

12. Certificates of Insurance Reviewing Contracts
Pros and cons
E&O claim example
Onerous request
Sample disclaimer…see manual Page 10
Where did you go to law school?
E&O Claim Example:
Insured carried $10M in CGL limits which was always enough to meet every contractual requirement encountered over several years.
However, one contract required $20M and the agent overlooked this.
Two weeks into the job, the insured had to double his limits at a cost of $8,000 which would come out of his profit on the job since his bid had not included this cost.
He filed an E&O claim against the agency.
Onerous Request:
A Michigan agent refused to review a contract and issue an agent opinion letter that his customer’s insurance conformed to the contact.
The certificate holder hired a consultant to do this.
The consultant then sent his bill to the AGENT to pay.
The agent said he’d pay it after getting a copy of the consultant’s Michigan insurance counselor license.
E&O Issues with Certificates of Insurance

13. Certificates of Insurance Contract vs. Policy Limits
Insured has a $5M policy limit and the contract only requires $1M, so he only wants the certificate to show $1M so he doesn’t reveal his full limit
ACORD FIG: “Enter limits corresponding to those found on the policy declarations page.”
It is likely illegal to misrepresent policy provisions
Some AI endorsements only pay the lesser of the two, so it would be OK to show that on the COI
E&O Issues with Certificates of Insurance

14. Certificates of Insurance Sending COIs to Insurers
Send them. Next question?
Marlin v. Wetzel (WV Sup. Ct., 2002)
Erie v. NGM (NY trial court, 2009
“Our internal procedures and our legal counsel require that a copy of all certificates be sent to our carriers.”
Some AI endorsements are triggered by the receipt of the certificate by the carrier.
E&O Issues with Certificates of Insurance

15. Certificates of Insurance Additional Insured Issues
MANY proprietary AI endorsements are significantly inferior to ISO forms (ongoing only, vicarious only, excess coverage, etc.)
“Primary and noncontributory” (new CG )
CA is not a true AI endorsement
E&O Issues with Certificates of Insurance

16. Certificates of Insurance Final Comments
Specific Steps to Decrease Exposure
Solutions for Agencies
Education
Procedures
Job restructuring
“Service, not servitude”
Review Pages from the manual
E&O Issues with Certificates of Insurance