Author: VU Faculty
Q. When issuing a certificate of insurance (COI), [our insured] attached contracts to review for insurance provisions to see if the insured meets the requirements as part of the process. Our standard response is that we are not attorneys, we only review for the insurance provisions, etc. One requirement that usually appears in the contracts pertains to how long a policy needs to remain in force after a job is completed. As an example, the insured contract with their client stated a policy was to be kept in force for two years after the work was completed. The job finished in December and the insured wants to cancel now. The questions stem from trying to determine what would be on the agent vs the insured and/or their attorney: At the time of reviewing contract for insurance purposes, is it up to agent to point out the length of time insurance needs to stay in force after completion of a job or are we safe to expect the insured attorney (or the insured if not using an attorney) should be aware of and plan for this requirement?
When insured requests to cancel the policy, is the agent obligated to go back and check any and all contracts we might have on file from issuing COI and point out to the insured this requirement? This is not feasible realistically speaking and I would expect create an unintended E&O exposure.
My opinion is that this is all for the insured/attorney to be aware of as these are not policy/insurance specific issues. They are legal issues. Would appreciate your letting me know what your stance on this might be. Thanks so much. Read these excellent answers below. When an agent has information where the Named Insured would be in breach of contract, the agent needs to clearly disclose the issues to the Named Insured. A remarkable number of problems arise after the work is complete. ======================================================================== You are "spot on" in many respects. The interpretation of a business (non-policy) contract and exhortations in regard to it are in the domain of the client's attorney. Your insurance license does not cover legal and non-policy contractual interpretation. In fact, most E&O carriers advise agents and brokers NOT to secure work contracts from their clients. All a COI does is affirm coverage is in force at its moment of creation. When an insured is canceling a policy, a discussion as to why that is being requested and the COVERAGE IMPLICATIONS of that decision to cancel are appropriate but pointing out work-contract obligations is not in the bailiwick of the insurance agent. Of course, documenting all requests and information provided by and to the client is crucially important for the safety of the agency and the ability to discuss insurance matters with the client as time goes on cogently. ======================================================================== First of all, it is good for you to communicate disclaimer information to your customers, that you are not attorneys and are not responsible for reviewing contract provisions. Having said that, when you issued the COI, you presented only the coverage that was in force at the time the COI was issued. You made no promises about coverage in the future. You are correct, you don’t want to take on the extra responsibility and exposure of tracking what contract provisions are fulfilled or now. However, in this case, it sounds like you are aware of this requirement and have had a discussion with your insured about the requirement. Since you have discussed it, it may be a good idea to document your discussion in writing to your insured. Something like: Per our discussion, you are aware of the contract requirement with XXX company to maintain insurance for a period of XXX. In spite of that, you would still like to cancel your policy, so we are requesting cancellation from XXX insurance company. When in doubt, always document. ======================================================================== Be wary of any kind of extra COI documents that are requested. You have no way of certifying that coverage will remain in force for X years after work completion. If you’re reviewing contracts, I’d include that in your disclaimer. ======================================================================= Your opinion is well researched. I applaud you for this outstanding effort for you and your agency. We are NOT attorneys. The contract is between the contractor/Builder and your named insured. The best advice is for your insured to review the contract with counsel and respond to that advice. Remember to document all parties inclusive of all parties involved. ======================================================================== I agree these are legal issues. I would talk to your corporate attorney to find out how to best protect yourself. ======================================================================== In our agency, we review contracts, not as an attorney, but as an insurance professional – identifying exposures and doing our best to advise the insured on how their insurance program provides insurance protection for their exposures. But we have a written disclaimer that is specific to the extent of our review and that we are not offering legal advice and that they should have contracts reviewed by competent legal counsel. In many situations, coverage does not match exposures. One of the difficult areas is the contract requirement for completed operations that extends beyond the current policy year. Does the contract actually state that a policy must remain in force for two years after a job is complete or does it state that products-completed operations must be in place for two years? That is a major difference in contract requirements. The policy in effect when the bodily injury and/or property damage occurs should respond, not necessarily the policy in effect when the work is being done. So, the agent’s understanding of contract language must dovetail with the agent’s knowledge of coverage. Don’t ever consult if you are not qualified to consult, it is good advice. As far as legal responsibility is concerned, we do not opine upon that concept under this forum. ======================================================================== If you only comment on insurance issues and state you are not a lawyer and do not comment on legal matters, you are doing a service to your insureds. ======================================================================== You are correct, contract compliance is your client’s responsibility, along with their attorney. All the COI does is say there was a policy the day it was issued. The less involved you are, the better. ======================================================================== Their attorney is in a better position to discuss specific past contractual/legal obligations when the business is closed. You do not want to take on this liability. Whenever a client reduces or cancels their insurance coverage, you should discuss their potential tail exposure from a coverage perspective. To document the discussion and protect yourself, do this in writing. In addition to contractual obligations, an insured can be legally responsible for 3rd party injuries for many years. Renewing coverage for additional years or purchasing discontinued products and completed ops coverage may be needed. Make sure to discuss more than the claims-made policies including other less-obvious tail exposures like discontinued products and completed operations. There are three examples below. Construction – Contractors can be responsible for many years after their work is completed. The statute of repose for construction defect can be 5, 7, or 10 years after completion. In most states, a client who stopped residential work in 2022 would still need CGL completed operations coverage for residential work today.
Auto repair – Our client closed their garage repair operations and insisted on cancelling all coverage immediately. 60 days later, a tire came off a car they repaired and caused an auto accident. Coverage was denied since a policy was not in place at the time of the occurrence (injury/accident).
Products Liability –The date of manufacturing or sale does not determine which policy will pay. CGL product coverage must be in place when the injury occurs. Products liability can continue for many years.
======================================================================== It's up to you to put in place, whenever possible, coverage requirements specified in a client's contract as you are instructed to do by the client directly or through their legal representative. If instructions vary from the requirements you perceive to be included in such contracts, the best bet is for you to communicate, in writing, your view, and to require that the client or their lawyer respond, in writing, their instructions, even though they vary from your advice. I think that lawyers refer to this as "papering the file." ======================================================================== The procedure used by your agency with respect to contracts is textbook E&O procedure, the disclaimer (hopefully in writing) is the correct approach. The agent/agency is not bound by the terms and/or conditions of any contract entered into by the client, and your allegiance is to the policyholder/client, not the general contractor or “party of the first part.” If you are instructed by your client to cancel, cancel the policy. [This all assumes that your agency has had not had any contact with the non-client party to the contract] I assume this is an occurrence policy which includes completed operations. The answer to your first question is no, it is not your responsibility to point out anything in the contract, it is the insured’s responsibility to know what is in the contract he/she/it is signing. Pointing out contractual provisions is not recommended. It’s better to suggest to the client that they review the contract with their attorney. The answer to your second question is also “no.” Unless the COI issued from your agency indicated that the policy was a two-year policy, your responsibility, as noted, is to the client. When a client requests that the policy be cancelled, the agency must cancel the policy. One last suggestion – do not engage in any conversations with non-clients concerning coverage. This would provide a fingerhold to the third party to bring an agent into a lawsuit. Any questions posed to the agency about a policy should be directed to the insured. ======================================================================== As a general matter, Massachusetts insurance producers are not obligated to advise customers unless the relationship results in a relationship of “special circumstances of assertion, representation and reliance.” This has generally been interpreted to mean that you must make some specific assertions on which your customers reasonably rely. It is one thing to use reasonable care to inform your customer about the types and amounts of insurance requested in a contract (and to place same) – it is quite another to advise your customer as to whether they comply with the contract. This is the practice of law. In other words, I don’t think you have an obligation to inform your customer that the decision to cancel or change coverage may violate contract terms. For example, if you tell your customer that you think the contract calls for X, but the customer does not want to purchase X, it is not up to you to lecture on breach of contract and its implications. You follow the customer’s direction. ======================================================================== If you go down the dangerous path of reviewing contracts for your insured to identify requirements related to insurance, I don't believe you can pick and choose which requirements you want to review without putting yourself in a potential E&O situation. This is why reviewing contracts, even provisions related to insurance, is not recommended. If your insured knows they need to keep a policy in force for two after the job is completed, would they still cancel the policy? Probably (or hopefully) not. So, is the agent required to go back and review the contract if the insured wants to cancel the policy before the two-year period? In this case, you better. You are creating an expectation that you are reviewing all insurance provisions. Even if you recommended to your insured that they have their attorney review the entire contract, if you don't have the documentation that you informed your insured about this requirement, you are setting yourself up for an E&O claim. ======================================================================== If you are offering to review contract insurance provisions before issuing a COI, I do think you need to do a complete review. This includes mentioning the fact that the insured is responsible for keeping insurance in force for two years after the work is complete, which will require them to continue to renew GL coverage for this period of time. Should the insured choose to cancel the policy, I don't think it is the responsibility of the agent to tell the insured which of its contracts require continued coverage. I do recommend, though, that you suggest and give a premium indication for discontinued operations coverage. You could include a comment that many of the contracts the insured has signed over the years may include a requirement for coverage to remain in effect for years after work is complete. Suggest to your insured that he discuss with his attorney the possible repercussions for breaching those contract terms. ======================================================================== You are correct. Keep in mind that a COI is a snapshot if insurance is in force at the time the certificate is issued – PERIOD. Insurance agents are not responsible for anything else. In conclusion, because you are often speaking to financial professionals who may send these requests on behalf of other organizations, the best example one can give is that a COI is similar to a balance sheet. It is simply a current “snapshot in time” of where insurance is when the agent or carrier issues the COI. There are no guarantees coverage won’t change or the policy won’t cancel. The Big I Ask an Expert portal is a solid reference for your agency management, coverage, or claims issues. Publication Date: March 8, 2024
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