Author: Chris Boggs

Lawyers and risk managers seem to finally understand that certificates of insurance (COIs) cannot be altered to state that coverage exists that doesn't exist, or conditions apply that don't apply. Certainly this is cause for celebration; agents can breathe a sigh of relief.

Oh, if only this was true!

Yes, many lawyers and risk managers have accepted the fact that COIs cannot be used to convey anything other than the reality of the policy; but this hasn't stopped these “black hats" from looking for other ways to corner the agent. These bad actors have developed another method for suckering agents into creating an errors and omissions (E&O) noose….

Enter the Addendum!

COI addendums are the newest E&O poison. Rather than forcing agents to attest to information that may or may not be true on a COI – which may violate statute – lawyers and risk managers have started requiring agents to complete addendums. Many states have statutes in place that do not allow a filed COI to be altered or attest to coverage beyond what is present in the policy, but many of these statutes don't address documents outside the COI (extra-COI documents).

Addendums require the agent to attest to facts or myths of coverage that were previously required in the COI. Regardless of the fact that the COI is not being altered, the agent is in no less danger if he or she undertakes to complete the coverage addendum.

When presented with the requirement to complete an addendum form, the agency is put in a tough spot. The upper tier contractor is threatening the agency's client; and likely the client is threatening the agency:

• “We won't let them on the site without the addendum."
• “They are holding up my pay until they receive the completed addendum."
• “You are the only agent that won't complete the form."

Although there are laws in many states that don't allow pay to be withheld; and the statement that “you are the only agent…" is nothing short of a lie – the agency must make a business decision. Part of this decision should be based on the very real E&O dangers presented by these addendums.

E&O Risk Management Recommendations or Processes

If the agency operates in a state where the COI law is not broad enough to include addendums, a tough decision must be made. From an E&O risk management perspective, following are the recommended responses in order of preference:

1. Refuse to compete and see what happens;
2. Do not complete, but send the declarations page listing all endorsements;
3. Do not complete, but send the policy (with permission of the insured); or
4. If there is no other choice, complete but with a cover letter/disclaimer to the requester stating:
1. that the agency does not and cannot guarantee the answers or information beyond the date the form was created;
2. that the policy is not and cannot be altered by the addendum because the policy is a contract between the insurance carrier and the insured to which the agent is not a party;
3. that policy language may limit the breadth of coverage and nothing alters the contract;
4. that underwriting guidelines may not or would not allow certain requests/requirements to be met;
5. that the agency is notifying the department of insurance because it is being required to complete a declaration of coverage that is NOT common to the industry and may violate statute (make sure to follow through on this);
6. that the agency is completing the form under written protest because the agency is being forced to violate its agreement with its E&O insurance carrier and putting the agency in a bad underwriting position; and
7. that the request violates business ethics by holding the lower tier contractor and the agency hostage to requirements that are unacceptable simply because the upper tier is in a superior negotiating position to the detriment of the lower tier and the agency.

Obviously, the preferred action is to not complete the addendum, but if the agency has little to no choice (and it's the only available business decision), the agency should make use of such a disclaimer letter. Have this letter written by an attorney but send this every time an addendum is requested and ultimately provided.

No agency should be victimized by these requirements, but COI addendums are now a fact of the insurance business. When forced to comply, there is NO reason the agency should not take whatever means is necessary to limit its exposure when being forced to provide an addendum against E&O risk management (and underwriting) recommendations and against the agency's better judgement.

Take the fight to them! Punch and counter punch. The agency has the right to protect itself and hit back!

First published: December 8, 2021

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