ACORD’s Certificate and Evidence of Insurance forms, which were made effective in late 2009/early 2010, have caused alarm among both insurance certificate holders and those who must provide them. Insurers no longer promise to notify certificate holders if policies are cancelled unless they issue endorsements in writing to their policies, which is highly unlikely. The old certificate forms no longer guarantee that an insurer will “endeavor mail __ day written notice to certificate holder.” The new certificate forms simply state that “…if any of the above-described policies are cancelled before their expiration date, notice will be sent in accordance to the policy provisions.
What does mean for certificate holders in standard insurance policies?
- Auto and liability – Even though a certificate holder may be an additional insured, the certificate holder will not receive notification if the policy has been cancelled. Notification will only be sent to the First Named Insurance.
- Workers’ compensation certificate holders will not receive notice of cancellation since the policy requires that the insurance company notify only the employer covered by the policy.
- Property – Mortgagees, loss payees and mortgagees on standard property policies will all be notified. Notifications will be given 10 days prior to the insurer cancelling for nonpayment, 30 day before it cancels due to any other reason, and 10 days prior it ceases renewing the policy (unless otherwise required by the state). Notification will not be sent to any other certificate holders or additional insureds.
- All policies – Certificate holders and additional insureds will not receive notification if the insured cancels the policy.
How can insurance requirements be modified in contracts to respond?
- Contract language that requires insurance certificates to state “__days notice be given” and that the “endeavors to” language be removed from certificates is not applicable. ACORD has made it clear that even if the certificate is changed, they do not alter the policy.
- The contract should stipulate that the insured party must give immediate notice to the lessor or owner. If the insurer gives notice to the insured entity of its cancellation or non-renewal. This is particularly important as many insurers won’t be willing to follow the recommendations below, especially for smaller insureds. This has the unfortunate drawback that it depends on the party reporting the non-performance.
- Contracts should stipulate that all policies of the insured must be endorsed to comply with the reasonable requirements of the certificate holder. However, not all insurers are willing to cooperate. If an insurer is willing to cooperate, it might be willing to extend the same notification rights as it does to the first Named insured. Here is an example of a manuscript endorsement that might achieve this end. Larger insureds might be eligible for greater notification rights.
“If we cancel this policy or choose not to renew it, we will send written notice to ____________ at ___________________. We will give the same notice to cancel or not renew as required by this policy the first named insured.
What does it mean for standard policies if the certificate holder receives the same notice of cancellation as the first named insured?
Standard commercial insurance policies provide the first named insured with a 10 day notice of cancellation in case of non-payment of premium. The insurer may cancel mid-term for any reason other than non-payment. Commercial general liability, automobile, and property policies give 30 days notice. However, workers compensation policies only provide 10 days notice for mid-term cancellation. An insurer may cancel a policy mid-term if it does not renew it. Non-renewal of property policies can also occur without advance notice to the insured. However, if the policy has a mortgagee, loss payee, or other beneficiary, the insurer must give at least 10 days notice. General liability policies can be cancelled with only 30 days notice.
Most states have their own laws that modify the requirements above. In some cases, more notice is required. Florida, for example, requires carriers to provide the first named insured with at least 45 days notice in certain circumstances. Many state laws have complicated provisions. They differ not only in terms of coverage, but also by the length of time that the policy has been in effect, as well as the reasons for cancellation or non-renewal. You can find the IRMI Insurance Cacellation Guide, published by the International Risk Management Institute.
A client with a larger insurance policy is more likely to be eligible for additional concessions from the insurer. These additional provisions should be required, if possible.
- Even if the insured initiates cancellation or nonrenewal, the certificate holder will be notified in advance
- No cancellation or non-renewal restrictions, regardless of whether the policies are standard or state laws.
Why don’t you just use the old form?
Some may wonder if the certificate holder doesn’t require the insured or its agent to present the old certificate of insurance. The first thing certificate holders and insureds need to know is that any agent who signs or modifies a standard certificate, or signs one that gives notice of cancellation, is almost always doing so in violation of the instructions of the insurance company. The certificate holder may hold a piece of paper that states that the insurance company will notify them of cancellation. However, they will not be able to stand behind the document. The certificate holder will have the right to sue the agent as well as its errors and omissions carrier if coverage is canceled. The agent likely executes the modified certificate knowing full well that it is not authorized. This makes coverage under the errors and omissions policy suspect. The Independent Insurance Agents and Brokers of America article by Bill Wilson provides a deeper understanding of why an agent executes modified certificates. This practice could be illegal, deceptive, or even illegal.
Vendor solutions
There are about 20 vendors that offer some type of verification and insurance certificate. Only one vendor has a certificate service that is completely independent of ACORD certificates and all their problems. As a service, I share their information with readers. You can find information about their services by searching the Internet under Ins-Cert Corporation’s name. Their system is Web-based, and the agent/broker must agree to make “good faith efforts” to cancel notices into their system. All certificate holders will receive cancellation notices by email automatically. The system seems to solve both the cancellation notices problem and the issue of fraudulent ACORD certificate holders. They appear to be a legitimate service that is worth considering. I would like readers to contact me if they have other solutions.
Why “Good Ol’ Days” weren’t so good –
The insurance industry should be able to notify certificate holders when an insurance policy is cancelled. They may have gained little in this change, other than the illusion that their insurer would notify them.
- Many insurance policies include a “blanket extra insured” endorsement. This means that any person that an insured has agreed to name as an extra insured in a contract, is automatically granted that status in its insurance policy. However, the insurance company doesn’t have access to the addresses and names of these additional insureds. The insurer is not able to contact them.
- As a matter of good-faith, certificate holders would assume that insurers would ask agents/brokers to send them a list containing all certificates they have issued in order for the insurer to “endeavor” cancel their policy. Surprisingly, this is not true. Agents/brokers have been instructed by many carriers to send copies of the certificates to them.
Eliminating the notice requirements is a good idea since many insurance companies have failed to make the effort to comply with the old certificate forms’ notice requirements. False promises have been stopped.
Closing thought
ACORD wrote about the changes on its website explaining that they had to modify its certificates as they sometimes contradicted the duties in the underlying insurance policies. They were unable to work with the other players in insurance (NCCI, ISO, and insurance companies) to find a solution that would solve the problem while still meeting the legitimate business needs of certificate holders who want to cancel their certificates. Before a solution can be found, the business community will likely continue to roar.
This information is intended to be a guideline only and not as legal advice.
Brent Winans, CPCU and ARM, is the VP of Risk Management Services at Delray Beach’s Plastridge Agency. He is available for a funny (Yes, humor!) presentation. He is available to give a humorous (Yes, humor!) presentation on the subject to all interested parties. He can also assist with the drafting of modern and practical insurance and risk management language, as well as other fee-based (no insurance sale) risk management services.
