Beyond the Certificate of Insurance

By: Joann N. Dyroff

Organizations frequently enter into contracts where the organization requires that it be named as an “additional insured” on another party’s insurance policies.  This protects the organization so that its own insurance will not be depleted by defense and liability costs as a result of its relationship with the other party, rather than due to the organization’s own negligence.  For example, if an organization has a community center that it makes available to outside parties, those outside parties typically need to provide the organization with evidence that the organization is protected if the building is damaged or a visitor is harmed due to an accident.  If an organization contracts for a construction project, the organization needs to be an additional insured on the general liability insurance of the contractors and subcontractors in case there is an injury to one of their employees.

Why a Certificate of Insurance is Not Enough:  The normal way of providing information to fulfill this requirement is through a Certificate of Insurance, which is usually issued on a form copyrighted by an organization called ACORD (Association for Cooperative Operations Research and Development).  The ACORD Certificate of Liability Insurance is then provided to the organization by the other party, and it appears to provide that the organization is named as an additional insured party under the liability insurance.

However, the Certificate of Liability Insurance does not actually provide evidence of insurance, and the most common form of this, ACORD Form No. 25, states: “THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER.  THIS CERTIFICATE DOES NOT AFFIRMATIVELY OR NEGATIVELY AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW.  THIS CERTIFICATE OF INSURANCE DOES NOT CONSTITUTE A CONTRACT BETWEEN THE ISSUING INSURER(S), AUTHORIZED REPRESENTATIVE OR PRODUCER, AND THE CERTIFICATE HOLDER.”

The ACORD Certificate of Liability Insurance, also provides: “IMPORTANT: If the Certificate Holder is an ADDITIONAL INSURED, the policy(ies) must have ADDITIONAL INSURED provisions or be endorsed.”

In short, the Certificate of Insurance, while normally understood by most individuals and entities to be evidence of actual insurance coverage for a third party, does not provide this insurance, but is provided for information purposes only.

Endorsement:  The Critical Next Step:

In order to actually be treated as an additional insured under the policy, the organization must have evidence that the insurance carrier has endorsed the policy to add the organization as an additional insured under the policy.  Therefore, the organization must request, not only a Certificate of Insurance, but an actual copy of the additional insured endorsement along with the Certificate.

To change the terms of the policy itself, an endorsement must be (1) generated by the insurer or an agent acting on behalf of the insurer (in writing), and (2) attached to the insurance policy itself.  A copy of such endorsement should be attached to the Certificate of Insurance.

What Happens If the Policy if Cancelled?

Under the specific terms of the ACORD Certificate of Insurance, notice of the cancellation of the policy is not normally provided to an additional insured.  The Certificate of Insurance states: “Should any of the above policies be cancelled before the expiration date thereof, notice will be delivered in accordance with the policy provisions.”  Most insurance policies provide for notice of cancellation only to the named insured (the other party), and not to an additional insured.  Therefore, while the organization may have a Certificate of Insurance and an actual copy of the additional-insured endorsement, if the policy is cancelled, no notice will be given to the organization of such cancellation.  Therefore, the organization should request that the additional-insured endorsement also provide that the additional insured is entitled to the same rights as the named insured in the event of cancellation.

Changes in Coverage:

Finally, insurance policies can change over time, and coverages may be modified or reduced in the future.  If there is a continuing relationship with a third party, the third party should confirm from time to time that adequate coverage continues under the policy, and it may be appropriate to request a copy of the full insurance policy to be able to confirm that the coverages are in place.  Certificates of Coverage, with proper endorsements, should be reviewed and updated on a regular basis.

Best Practices:

In order to fully protect an organization when dealing with a third party who is required to provide insurance, therefore, the following steps should be taken:

    1. Request a Certificate of Liability Insurance.  This provides information about the policy and will be useful in the event that a claim needs to be made. All relevant insurance companies should be shown, including the current policy numbers, and all coverage limitations should be referenced.
    2. Request that the insurer provide an endorsement stating that the organization is an additional insured.
    3. Request that the endorsement provides that the organization, as an additional insured, is entitled to the same rights as the named insured in the event of cancellation.  This can take the form of a separate endorsement or an amendment to an additional-insured endorsement.

    If it is not possible to secure those provisions regarding cancellation with an endorsement, the best alternative is to require that the third party provide prompt notice of cancellation or regular confirmations that the relevant insurance remains in force, with the appropriate coverage provisions that will protect the organization.

    1.  Periodically review Certificates of Insurance and endorsements with parties where there are ongoing relationships, to confirm that the insurance is still in place with appropriate coverages.

Disclaimer

Joann N. Dyroff

Joann N. Dyroff

Joann Dyroff's diverse practice includes estate planning, probate and trust administration, and business planning. Her practice's primary focus includes consulting with individuals about estate planning matters and the preparation and review of Qualified Domestic Relations Orders, for attorneys within and outside the Firm.
Joann N. Dyroff

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