Courts have generally held that certificates of insurance are not contracts and, therefore, not enforceable. However, this doesn't mean that agents are insulated from lawsuits involving certificates of insurance under several legal premises. This article explores a number of court cases dealing with certificates of insurance.

• Certificates of Insurance Issues and Answers

Introduction

One issue that is often raised is whether or not the ACORD "will endeavor to" language creates any rights to notice of cancellation for a certificate holder. Recently, in Nazami v. Patrons Mutual Insurance Company, Nos. 17537, 17539, Atlantic Reporter 2d 209, December 5, 2006, the Connecticut Supreme Court ruled that failure to provide notice of cancellation under the ACORD certificate did not constitute fraud or negligence. The fraud allegation was dismissed largely because of the disclaimer language on the form and the negligence allegation was dismissed because the certificate holder was owed no duty of care and the certificate was issued "as a matter of information only," conferred no rights on the holder and did not constitute a contract between the holder and agent, again largely because of the disclaimer language.

• Sumitomo Marine and Fire Ins. Co. v. Southern Guaranty Ins. Co. and Columbia National Ins. Co., 337 Fed. Supp. 2d 1339 (U.S. Dist. Ct. No. Dist. Georgia 2004).  The agent’s two insurers had to protect the developer, covered by Sumitomo, who relied on a certificate representing additional insured status where the policies were not endorsed. The court relied on Don Malecki’s The Additional Insured Book and his affidavit.
  
  
• Marlin v. Wetzel County Board of Education, 569 S.E. 2d 462 (Sup. Ct. of App., W. Va. 2002). This case was resolved with the same result as Sumitomo, where the court relied on the The Additional Insured Book.

• Brown Mach. Works & Supply Co. v. Ins. Co. of North America, 659 So. 2d 51, 56 (Ala. 1995).  The court held that an insurance company that does not deliver a policy to a certificate holder is estopped from asserting exclusions contained in the policy but not revealed in the certificate.
  
  
• Moore v. Energy Mut. Ins. Co., 814 P.2d 1141, 1144 (Utah App. 1991).  The court held that exclusions are invalid unless they are communicated to the certificate holder in writing.
  
  
• International Amphitheatre v. Vanguard Underwriters Ins. Co., 532 N.E. 2d 493 (Ill. Ct. App. 1988).  In this case, the court contrasted this decision with their earlier Lezak and Pekin decisions (see above) because the certificates in those cases clearly stated that they were not part of the insurance contract.
  
  
• City of Northglenn v. Chevron USA, Inc., 634 F. Supp. 217, 225 (D. Colo. 1986).
  
  
• J.M. Corbett Co. v. Insurance Co. of N. Am., 357 N.E.2d 125 (Ill. Ct. App. 1976).  The court held that because an exclusion was not provided to certificate holder, the terms of the certificate controlled.
  
  
• White Motors Corp. v. Northland Ins. Co., 315 F. Supp. 689, 693 (D. S.D. 1970).

Fraudulent Certificates

Binyan Shel Chessed, Inc. v. Goldberger Insurance Brokerage, Inc., 2005 WL 1164019 (App. Div., 2nd Dep't, May 16, 2005)

The plaintiff contracted with the defendant American Building Corporation (hereinafter American) to perform renovation work on its premises. Goldberger Insurance Brokerage, Inc. (hereinafter Goldberger), which is American's insurance broker, delivered a "certificate of liability insurance" to the plaintiff stating that American had liability insurance with Colonial Cooperative Insurance Co. (hereinafter Colonial) and that the plaintiff was an additional named insured. The certificate was dated July 15, 1999, and stated that the policy number was ACC5449828 with a policy term running from December 1, 1998, until December 1, 1999. The certificate further stated that it was "issued as a matter of information only and confers no rights upon the certificate holder. This certificate does not amend, extend or alter the coverage afforded by the policies below."

On or about July 20, 1999, a worker for one of American's subcontractors was injured on the plaintiff's premises. In this action against, among others, Colonial, Goldberger, and American, the plaintiff seeks damages and a judgment declaring that Colonial is obligated to defend and indemnify it for the accident. Colonial moved for summary judgment, stating that a search of its records revealed no policy insuring either American or the plaintiff, and that it never issued a policy which began with the letters "ACC."

Goldberger separately moved for summary judgment on the grounds, inter alia, that there was no privity of contract between it and the plaintiff, and the certificate of insurance contained a disclaimer that it conferred no rights on the certificate holder. Goldberger's president, Chaim Goldberger, submitted an affirmation which stated that American was one of Goldberger’s customers but Goldberger never received payment from American for the subject Colonial policy, and accordingly, "the policy was never procured."

Since there was no privity of contract between Goldberger and the plaintiff, the plaintiff cannot recover from Goldberger for its pecuniary loss "absent evidence of fraud, collusion, or other special circumstances" (Calamari v Grace, 98 AD2d 74, 83; see Good Old Days Tavern v Zwirn, 259 AD2d 300; Metral v Horn, 213 AD2d 524, 526). However, "a cause of action sounding in fraud does not require the existence of a relationship of privity or something close to privity between the parties" (Metral v Horn, supra at 526). Under the particular facts of this case, summary judgment to Goldberger at this juncture would be premature. The certificate was issued over six months after the policy purportedly went into effect. Therefore, a question arises as to why Goldberger was not aware that the policy had not been paid for at the time the certificate was issued. Further, a question arises as to how Goldberger came to use a policy number with a prefix which was never a policy prefix in existence for this carrier. Depositions should therefore be held.

It is well settled that the duty of an insurance broker runs to its customer and not to any additional insureds since there is no privity of contract for the imposition of liability (see St. George v Barney Corp., 270 AD2d 171, 172; see also Halali v Vista Envts., 245 AD2d 422). The majority opinion acknowledges that there was no privity of contract between Goldberger and the plaintiff, and thus the plaintiff cannot recover from Goldberger unless there is evidence of "fraud, collusion or other special circumstances." However, the majority concludes that the circumstances of the case, including the fact that the certificate of insurance was issued six months after the insurance policy allegedly went into effect, raises issues of fact concerning the "possibility of fraud and collusion between Goldberger and American," the contractor for whom Goldberger was to obtain the subject insurance….

Handley v. Providence Mutual Fire Insurance Company, 898 A.2d 492 (NH Sup. Ct., 2006)

According to the court, "[T]he certificate here does not clearly indicate that it is issued for 'information only' or that it 'confers no rights upon the certificate holder.'

"Moreover, the parties do not dispute that Olivier [agent] knew that Miles [insured] had no insurance through Providence when he faxed the certificate to Handley [certificate holder]. [T]he certificate in this case did not even accurately certify that coverage existed on the day it was issued.

"In this case, Olivier, Providence's authorized representative, admits that the certificate supplied false information to Handley.

"For these reasons, we conclude that the trial court erred in concluding that Bradley [another court case] compelled it to grant summary judgment to Providence. Reversed and remanded."

Ostensible Agency Authority

American Casualty Co. of Reading, PA v. Krieger, 181 F.3d 1113 (9th Circuit, 1999)

The Court of Appeals for the Ninth Circuit has held that an independent broker may have ostensible authority to extend additional-insured coverage on behalf of a carrier even though it had no actual binding authority and even though the carrier never issued or been paid a premium for an additional-insured endorsement. Doing business as Playscool Productions, Zweig promoted and produced an annual entertainment event known as "Playscool." Krieger contacted Zweig about performing bungee jumping demonstrations. Zweig agreed, provided that he was named as an additional insured to Krieger's liability policy with American Casualty Company. Krieger subsequently contacted his insurance broker, SEIS, and SEIS issued a certificate of insurance listing Zweig and Playscool Productions as additional insureds. SEIS, however, never actually obtained an additional insured endorsement from American Casualty covering Zweig or Playscool Productions.

While rehearsing for a Playscool event, two individuals were seriously injured and subsequently filed suit against Zweig and Krieger. Both tendered the suit to American Casualty. American Casualty denied their claims based on an exclusion in the policy which excluded coverage for injuries sustained while participating in a sporting event. American Casualty also denied Zweig's claim because neither Zweig nor Playscool Productions were listed as additional insureds on the policy. Judgment in state court was eventually entered against Zweig for approximately $4.2 million. American Casualty then filed a declaratory relief action in federal court. The district court granted American Casualty's motion for summary judgment, finding that Zweig could not show that he was an additional insured under Krieger's policy.

The Ninth Circuit reversed and ruled that Zweig had raised a triable issue of whether SEIS was American Casualty's "ostensible agent." The Court rejected American Casualty's argument that it could not be liable under an ostensible agency theory because Zweig did not have any direct communications with American Casualty or its underwriting agent, AON. The Court also rejected American Casualty's argument that, because the certificate of insurance issued to Zweig was a standard form that is widely used in the insurance industry and did not have American Casualty's named printed anywhere on the form, there was no evidence to support Zweig's claim that SEIS was authorized to name Zweig as an additional insured.

The Court explained that one can be liable under an ostensible agency theory "where the principal knows that the agent holds himself out as clothed with certain authority, and remains silent." The Court noted that testimony established that SEIS fielded many requests for certificates of insurance and that American Casualty's agent, AON, had received a fax from SEIS forwarding Krieger's initial application for insurance and his request to add Zweig as an additional insured. In the Court's view, this was sufficient to show that AON planned to issue a certificate of insurance to Zweig before the particular bungee jumps took place.

American Casualty countered that it generally requires an additional fee, reviews proposed certificates of insurance and issues an endorsement to the policy before it agrees to add an additional insured. American Casualty also pointed out that the standard form certificate of insurance in question expressly stated that it was issued for informational purposes only and that it did not "amend, extend or alter the coverage afforded by the policies." The Court nonetheless found these facts irrelevant to the issue of whether SEIS had ostensible authority to issue certificates of insurance which serve as notification to insureds that they are covered under a policy.

The Court noted that evidence indicated that AON and American Casualty were aware that SEIS: (1) used standard form certificates to notify others that additional insured coverage existed; and (2) held itself out as authorized to issue such certificates. The Court found that silence in the face of such knowledge could create ostensible agency. The Court also observed that it was logical that one who has obtained insurance through a broker would ask the same broker to have an additional insured added to the policy "...and that once that broker issues a certificate of insurance identifying the additional insured, the broker in fact had the carrier's authority to bind coverage for that added risk."

Horn v. Transcon Lines, Inc., 898 F.2d 589, 593 (7th Cir.1990)

While hauling a load of freight for Jeffries Trucking, Thurmond drove his rig off the road. Thurmond died, and his passenger, Horn, was seriously injured. Horn sued for personal injury damages.

At the time of the accident, Thurmond had procured "deadheading" and "bobtailing" insurance issued by Liberty Mutual pursuant to a lease with Transcon Lines. The "Certificate of Automobile Insurance" showed coverage to "Specified Lessors to Keystone Lines," describing Thurmond as an additional insured, showing bodily injury and property damage combined single limit of $500,000. The certificate implied that Thurmond had liability insurance for the operation of the truck.

Unknown to Jeffries Trucking, however, this insurance policy prohibited Thurmond from driving for companies not on a set "list of carriers" cooperating with Transcon Lines. Thurmond had leased his truck to Transcon Lines. Nonetheless, Thurmond continued to drive for Jeffries Trucking. When Jeffries Trucking insisted that all persons supplying transportation of cargoes also supply insurance, Thurmond displayed a "Certificate of Automobile Insurance" issued by Liberty Mutual. Thurmond knew, though Jeffries Trucking did not, that Thurmond's coverage under Liberty Mutual did not apply. The certificate did not spell out the limitations on the scope of the insurance.

The trial court held that Horn was entitled to damages, and that Jeffries Trucking, which paid Horn, was entitled to indemnity of $518,000 from Thurmond's estate, which Liberty Mutual had to pay on the estate's behalf. Liberty Mutual appealed, contending that the policy did not cover Thurmond at the time of the accident, and that its liability could not exceed the policy limit of $500,000.

The appellate court held that Jeffries Trucking was entitled to indemnity from Liberty Mutual. The court stressed that an insurer may not enforce vital limitations or exclusions missing from the certificate of insurance. While the California Insurance Code stressed that a certificate described only the general nature of the coverage, and required a person to consult the master policy to determine its full terms and details, the certificate sent to Thurmond was so misleading that the contents of the master policy could not be called details or elaborations. Moreover, Liberty Mutual's formal policy was not even issued at the time. As of the date of the accident, the certificate was the policy, rather than just evidence of coverage under some more elaborate document.

Marlin v. Wetzel County Board of Education, 569 S.E. 2d 462 (Sup. Ct. of App., W. Va. 2002)

"We therefore hold that a certificate of insurance is evidence of insurance coverage, and is not a separate and distinct contract for insurance. However, because a certificate of insurance is an insurance company's written representation that a policyholder has certain insurance coverage in effect at the time the certificate is issued, the insurance company may be estopped from later denying the existence of that coverage when the policyholder or the recipient of a certificate has reasonably relied to their detriment upon a misrepresentation in the certificate."

Note: Digressing a moment, another important lesson of Marlin v. Wetzel involves the issue of when insurers tell agents NOT to send copies of certificates to the carrier. It has long been an E&O practice to recommend that agents send certificates anyway. Marlin provides one reason for this when "[t]he insurance company asserted that it never received the certificate of insurance or any other document suggesting the insurance policies needed to be amended" to make the Board an additional insured. According to the court, "[The insurer] does not dispute that its agent issued a certificate of insurance listing the Board as an additional insured. Instead, [the insurer] argues that it had no knowledge of the certificate's existence, and therefore could not modify the actual policy to include coverage for the Board."

“Our requirement used to be that the subcontractor's certificate include a statement that our company and the owner were named as additional insureds. Some years ago, I conducted a random survey of subcontracts, selecting a sample of 20, and found that in 8 of the cases (40 percent), we had not in fact been named, despite the required statement having been typed on the certificate.

“If there is a serious loss, I for one do not wish to rely on either some doubtful claim against an agent's E&O policy, or a breach of contract claim against a subcontractor to protect our program. So, we now require one of two documents in addition to the certificate: i) A copy of the additional insured endorsement itself (automatic or scheduled), or ii) a letter from the agent to the insurance company requesting the endorsement.”

 

Certificates Lacking Disclaimer Language

Two lines of Illinois cases address the issue of coverage when there is a certificate of insurance separate from the policy itself. In one line of cases, where the certificate did not refer to the policy, and the terms of the certificate conflicted with the terms of the policy, the courts found that the certificate language should govern the extent and terms of coverage. See International Amphitheatre Co. v. Vanguard Underwriters Ins. Co., 532 N.E.2d 493, 502 (Ill. App. 1 Dist. 1988) (where the terms of the certificate conflicted with the terms of the policy, the insured was not aware of the exclusions in the policy, and the certificate did not warn of further exclusions, the certificate would govern the terms of the insurance contract); John Bader Lumber, 441 N.E.2d at 1308 (same); J.M. Corbett Co. v. Insurance Co. of North America, 357 N.E.2d 125, 127-28 (Ill. App. 1 Dist. 1976) (same).

But where the certificate refers to the policy and expressly disclaims any coverage other than that contained in the policy itself, the courts found that the policy should govern the extent and terms of the coverage. See American Country Ins. Co. v. Kraemer Brothers, Inc., 699 N.E.2d 1056, 1060 (Ill. App. 1 Dist. 1998) (where the certificate of insurance contains a disclaimer, the insured may not rely on the certificate but must look to the policy itself to determine the scope of coverage); Pekin Ins. Co. v. American Country Ins. Co., 572 N.E.2d 1112, 1114-15 (Ill. App. 1 Dist. 1991) (where the certificate of insurance contains a disclaimer and there is no conflict between the terms of the certificate and the terms of the policy, the insured will be held to the terms of the underlying policy); Lezak & Levy Wholesale Meats, Inc. v. Illinois Employers Ins. Co. of Wausau, 460 N.E.2d 475, 477 (Ill. App. 1 Dist. 1984) (same).

Important Information

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