"Can National put out a 'paper' explaining to account managers what is automatically included in a CGL policy, who is covered contractually and how the term hold harmless, waiver of subrogation, and primary non-contributory is addressed in the standard policy language of the CGL and commercial auto? More and more requests are coming in trying to transfer liability to another party. It is getting very difficult to explain to our employees how to handle these requests. Once we determine what language can or cannot be put on the certificate, we then have to try to explain it to our customers. Usually, they have signed a contract agreeing to this language and are then upset that it cannot be done.

"Unfortunately, we are considered by our clients to be the 'bad guys' that are jeopardizing their livelihoods. I'm not sure exactly what the answer to this problem is or if National can do anything about it, but maybe a clarification 'paper' would help."

Most everything mentioned in this inquiry can create problems when certificates are issued. Fortunately, most of these are addressed by articles on the Virtual University, as outlined below.

The whole issue of modifying certificates (and more) is discussed in these articles:

• Additional Insureds and Certificates

• Following Up on Certificates of Insurance

• Certificates vs. Policy Limits

• Surveys and Polls: Certificate vs. Policy Limits

With regard to the "primary, noncontributory" issue, if the certificate holder is an AI, under the current ISO CGL policy, coverage is provided on a primary basis. Here's a recent "Ask an Expert" question on this:

"What is the effect of using the wording in a certificate of 'this insurance to be primary and non-contributory.' It is being requested more frequently."

The effect of using that wording in a certificate is a potential E&O claim for the agent. Never add wording to a certificate. If the certificateholder wants the contractor's policy to be primary, then the certificateholder should change his own policy to make it excess. The latest edition of the CGL policy does just that. Certificateholders that request this wording on the certificate do so out of ignorance of current insurance forms and practices.

First, the Certificate of Insurance does not change the policy. It is only a representation. It is not a contract with the certificate holder. So the language does not have any power over the policy's coverage.

Second, if everyone involved is using the ISO coverage forms, the CGL form makes the additional insured primary on the policy of the other party. And the additional insured's own policy states that their own coverage is excess of any policy that names them as an additional insured. If their own coverage is excess and their coverage on the other party's policy is primary, they have primary and noncontributory coverage.

If all of the forms are not ISO CGL, then it may not be primary and noncontributory. If the additional insured endorsement names them as an additional insured on an excess basis (beware insurance company proprietary forms), the coverage ends up being primary and contributory.

One last point on Certificates of Insurance...if the injured party ends up being declared a "third party beneficiary of the policy," then any misleading problems on the certificate could end up resulting in an E&O lawsuit against the agent from the injured party. Governmental certificate holders definitely have that potential.

The problem is with the term "noncontributory." I've never seen it defined in a contract and, when you ask, the person offering the contract doesn't have a clue what it means. If you can track down the attorney who wrote it, he won't know either.

If it means that the coverage is intended to be excess only, then the CGL/AI endorsements in the ISO program take care of that. If it means that the insurance won't even contribute on an excess basis, then you have a problem. Since that's not going to be the case under most forms, what the certificate says means nothing, though the insured could have a contractual liability problem if he's agreed to provide coverage in accordance with a contract and, despite what the certificate says, doesn't do it.

BTW...when you see language like this, as the agent, you should NEVER issue a certificate with that language. Any time you have non-ACORD wording, the insurer needs to issue the certificate or sign off on it. Otherwise, an E&O lawsuit is only a matter of time.

Wording like this on a certificate of insurance has no force or effect whatsoever other than to create a potential E&O exposure for the agent/broker if the policy is not endorsed to provide the "certified" coverage. There are a multitude of court cases on this subject.

The effect is a potential E&O claim against the agent. The ISO CGL, 98 and 01 editions have solved this problem in the 'Other Insurance' provision, Condition 4 of the policy. The problem is that the other policies on the certificate do not read the same. For example, the BAP is primary only if the Named Insured owns the vehicle, otherwise the coverage is excess. The umbrella policies are company specific and therefore do not follow ISO verbiage in all instances. Finally, not all CGLs are ISO. One major carrier I'm familiar with often will add a certificate holder as an additional insured on a primary basis, but not non-contributory.

So, the bottom line is do not add that verbiage to the certificate, unless you know that it actually applies.

___________________________________

With all of the above being said, I recently conducted a poll of several of my agency clients. Below is the question I presented and their responses.

I am looking for some input from you please. This relates to an operational issue that I am sure many agencies face. I recently reviewed an agency that issues a fair number of certificates of insurance. In reviewing the process I found that about 75% of the requests for certificates included something that needed the okay of the underwriter or even an endorsement to the policy and, in many cases, these are money bearing endorsements.

My questions are two-fold. First, is this true in most agencies? Second, many of the contractors have contracts or agreements that they send to the agency for an interpretation on what is required on the certificate of insurance. Do most agencies have the producer review the contract or the CSRs?

___________________________________

If a contract comes in for interpretation, it is given to the producer to review. On the first point, some companies now have a blanket additional insured endorsement so you do not have to add and make a charge each time. We do see more and more items in the contracts which require review by a company and maybe some type of charge to the client.

___________________________________

We teach constantly that certificates should reflect exactly what is already on the policy. But under pressure from contractors, lots of agencies will alter them instead of losing a customer to the agency down the street who will alter it. Usually just a CSR handles certs, rarely will a producer be involved.

This is not true in our agency. Per our client services manager, there are some instances where they are requesting modification of the certificate to allow for additional insureds, but we never have cert requests that require underwriter approval or money-bearing endorsement of the policy.

Secondly, our CSAs review the insurance requirements of the contractor agreements (all are licensed) and if they have questions or are not certain about any info in the agreement, they will take it to the producer for clarification.

___________________________________

Our agency risk management committee is currently dealing with this issue also. We do received certificate requests that need underwriter okay and/or endorsements. I'm not sure that our percentage is as high as 75%, but it still remains a significant problem. If the client submits a contract or agreement for interpretation, it usually goes to the CSR first. If it is fairly routine, they will handle it. If the particular situation hasn't been dealt with for this or some prior request, the producer will be brought in to the discussion.

___________________________________

When presented the opportunity, we review every contract, hopefully before it's been signed, often making suggestions to delete onerous wording and suggesting other changes. We advise on uninsurable issues, always suggest 2-way holdharmless agreements, and get pricing from companies for endorsements requiring APs. We try to educate our clients on these issues, whether a contractor, storeowner, etc. Every business faces a lease or contract at some point, and most contain insurance requirements. We suggest they consult their attorney on legal issues we're not qualified to opine on.

Then there are the contracts we get after they've been signed. It's hard to explain the pitfalls after the insured has committed to them.

Another issue we face is when we speak to an owner or contractor about some of their requirements, and that we can't or won't do some of them, and they respond, "I'll have your client call XYZ Agency, they gave us the certificate." This usually means the agency or CSR issued the certificate without review or company approval and they've unwittingly created an E&O exposure.

Our clients appreciate what we do, once they understand the purpose of our Trusted Advice!

___________________________________

We are careful and I would be surprised that 75% would be in this area...probably 25% for us and it is a concern but we do a lot of training on this issue. Since 50% of our volume is construction, we have producers and high level CSRs review contracts and do the certificates.

___________________________________

Although there are amendments to certs, most are predictable and should be discussed with underwriters when the program is marketed and bound. The requests generally are repetitive and not totally unusual. Knowing what the underwriter will do and their general feeling on certs is important to resolve up front. With contractors and PEOs, yes, almost all require unique wording, but it can be handled smoothly if the upfront work is done with the carrier.

Having the producer review cert requests probably isn't in the best interests of the agency, broker or client. A technical person should do this.

___________________________________

Our agency requires insureds to send in copies of the contract or at least the insurance portion (I feel better looking at the whole contract). We will then review the insurance requirements and give our insured a faxed list of the insurance deficiencies of the current coverage (if no contract is received, we tell the insured that we have no idea if they have the proper coverage). Some can be remedied by buying coverage. Some are beyond what the insurance company is willing to do. Some are beyond what the insurance industry is willing to do.

We explain that. If the insured wants a certificate with just the current coverage, we explain that the certificate may not be reviewed before the work is done. With a review and rejection after the work is done, we cannot get retroactive insurance and they may not be paid for the work. We also stamp each certificate with the following: "This certificate of insurance represents coverage currently in effect and may or may not be in compliance with any written contract." As a matter of fact, no insurance policy or collection of insurance policies will completely cover the insured's indemnification promise in many instances.

___________________________________

A brilliant question. The answer is difficult. First, an agency or brokerage that issues a certificate without the permission, and often without the knowledge, of the insurer is in trouble and should immediately notify its E&O insurer of multiple potential claims. If brokers are taking on the obligation of reading and understanding a construction contract to determine what additional insureds or lienholders need to be named as additional insureds or just certificateholders, they should seek legal advice and consider making a report to their E&O insurer because the broker may not have the legal training and skill to interpret a contract that could be 200 pages long.

This is even more dangerous if a CSR reviews the document. A lawyer will tell you that a construction contract is more complicated and harder to understand than an insurance contract. I would like to see the statistics gathered since the practice described, which I think is widespread, is very dangerous. Contracts should be analyzed and interpreted by lawyers, not producers or CSRs..

___________________________________

I think certificates are a problem for most agencies.  The professional agencies usually review contracts for insurance requirements. The problem is that they get the contracts after they are signed and the agents are often being asked to certify coverage the insured doesn't have.  The trend in risk management is to try to transfer all liability whether insurable or not.

To compound the problem, many insurers have told agents they don't want to see copies of certificates.  I always caution agents about putting any additional wording on the certificates (e.g., advance notice of cancellation, wording from the contract, reference to specific coverage, etc.)  I recommend these requests be sent to the insurer for issuance (or, more likely, denial).

Also, many contracts require the completion of non-standard certificates that do not contain the typical disclaimers contained in the standard ACORD certificate. The agent is in a "catch-22" situation. If he doesn't issue the certificate requested, the contractor doesn't get paid.  If he does issue the certificate, he might be extending or implying non-existent coverage.

I was recently in Alabama and learned they have a regulation (Regulation #62, Section 3) that states "no licensed agent may issue a certificate of insurance which either affirmatively of negatively amends, extends, or alters the coverage provided."  The agent is subject to a $10,000 civil fine for issuing such a document.  This problem seems to be epidemic in the industry. I believe there is a need for legislation to address this problem.

___________________________________

FEEDBACK
Does your agency have a formal contract review and/or certificate procedure in your agency procedures manual? If so, please let us know how you handle these issues by email your comments or references to Bill.Wilson@iiaba.net. We will add them here if possible. If you would like your comments to remain anonymous, please indicate such on your response. 

___________________________________

By Judith H. Newman, President of Phaze II Consulting, Inc. Judi has worked on site with over 500 agents across the nation on a variety of consulting projects. Phaze II Consulting, Inc. is the owner of the Master Agency Manager, designed to be the most complete and easy to use agency management resource available today. The Master Agency Manager is a must have tool for anyone interested in the insurance agency business.

Phaze II Consulting, Inc. provides consulting services to independent insurance agencies in matters of management issues, operations, planning, valuations and customized projects for individual clients. Phaze II Consulting, Inc. is prepared to assist you in undertaking the compliance process for HIPAA and GLB (Gramm, Leach, Bliley). Please contact Judi Newman at 800-638-0657 or judinewman@aol.com for additional information on the HIPAA Compliance Program.

Copyright 2003 by Phaze II Consulting, Inc. Used with permission.
All rights reserved. No part of this article may be reproduced in any form or by electronic or mechanical means without permission from the publisher.