Insurance Certificates Basics

by Emily Brown

Purpose and Use

Certificates of Insurance are a convenient way to provide information regarding the insurance maintained by one company (the insured) that has a business relationship with another company (the requesting company or certificate holder). The purpose of the certificate is to verify the existence of the policyholder’s insurance that is in force at the time the certificate is issued. The certificate briefly describes the coverage, policy limits, expiration dates, etc. that would be available in case the insured company causes a claim of injury to person or property.

The first standard certificate of insurance was introduced by an organization called Agency Company Organization for Research and Development (ACORD) in 1976. While some insurance companies such as Liberty Mutual, State Farm, etc. and some brokers such as Marsh have created their own certificate forms, the ACORD form 25-S and 27-S for property are considered the standard throughout the industry and are the most widely used forms today.

Certificate Form

Issue Date: This is the date the certificate was issued. It has no relationship to the Effective and Expiration dates of any policy listed on the certificate.

Producer: This is the agent or broker that created the certificate. He/she represents the insured. Independent agents have no authority to bind the insurance company.

Insurance Companies: These are the companies providing insurance. There may be up to five different insurance companies providing insurance on one certificate. Each insurance company is designated by a letter of the alphabet A through E. That corresponding letter is inserted to the left of the insurance provided.

Named Insured: This is the company that purchased the insurance. The policy is in their name or the name of the parent company.

Evidence of Insurance:

• Policy Numbers: This field lists a policy number for each type of coverage. One policy may include several different insurance types: General Liability, Automobile, Excess and Statutory Limits for Workers Compensation, and Employer Liability, etc.
• Effective and Expiration Dates: These dates are listed for each policy and they may or may not be the same.
• Limits: These are the maximum dollar amounts that the policy will pay.

Description Section: This section contains statements that describe endorsements and special provisions to the policy that limit and/or expand the coverage provided. The certificate of insurance is not intended to be used to endorse the policy; its sole purpose is to reflect accurately the insurance in effect. You should request a copy of the endorsement be submitted with the certificate. Typical endorsements listed here include:

• Waiver of Subrogation endorsement to the workers compensation policy and the endorsement wording is to be quoted on the certificate. In short, do not quote the wording of any policy change unless and until the policy has been amended.
• Additional Insured: In many cases, the requesting company will ask to be added to the insurance of the insured company as an “additional insured.” See further discussion below.
• Job Specific: Many certificates limit the coverage specified on the certificate to a particular job or location excluding other sites and locations where work is performed.
• By Contract: Certificates sometimes describe the policy limitation that the coverage must be required in a contract between the named insured and the certificate holder.

Certificate Holder: This is the company that requested the certificate. The additional insured statement often refers to the certificate holder as the additional insured. Therefore, it is important that the information be correct.

Cancellation Notice: The language in this section describes actions that the insurance company will take should they cancel the insurance. The statement that they will “endeavor” to notify the additional insured relieves them of any responsibility. Many certificate holders are now requiring that this language be struck out. Although the issuer now agrees to issue the notice (better than just trying), it still is not responsible if it does not issue the notice.

Additional Insured: If a certificate makes a statement that the certificate holder has been added as an “additional Insured” and the policy has not been endorsed to name the specific certificate holder as an additional insured, the certificate holder is not an additional insured.

Even if the policy is endorsed, whether or not meaningful coverage is afforded may depend on who is named as the insured. On many policies, the named insured is a parent or holding company, or some other entity not directly involved with the transaction. This may mean that the additional insured will not receive any coverage if the named insured did not commit the act or omission that caused the claim. For this reason a strong Additional Insured endorsement should include subsidiaries, agents, directors, etc.

Some insurers issue endorsements to their policies stipulating that if a certificate is issued showing the certificate holder as an additional insured, the certificate holder will be automatically recognized as an additional insured. However, some of these automatic additional insured endorsements provide very limited coverage.

Legal Standing of Certificates

Certificates have no legal standing and cannot add or subtract from the actual coverage afforded in a policy. The certificate creates no rights for the recipient. It is not a policy, nor can it be relied on as a policy. These limitations are clearly stated both on the front top of the certificate and on the back of the certificate. The top of each ACORD certificate states:

“This certificate is 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.” (ACORD 25, 2001/08)

The back of each original ACORD certificate states provides the following disclaimer. If the certificate is faxed, the disclaimer may not be there, but it is still part of the certificate.

Trial courts have found agents liable for failure to accurately issue a certificate. In such cases, the agent is alleged to have negligently or fraudulently misrepresented to the certificate holder the customer’s insurance. A common error is representing changes to the policy on the certificate, which are never requested by the agent or executed by the insurance company.

Using Certificates

For all their limitations, certificates of insurance are far more convenient to work with than reading through your business associate’s insurance policies to evaluate if your company is adequately protected. To effectively use certificates to adequately protect your company, determine what insurance you want your business partners to carry and collect and track certificates and endorsements that demonstrate that you are protected.

References