Property Managers and Certificates of Insurance

by Emily Brown

Property managers generally know to get a copy of the evidence of insurance from any tenant for asset management purposes. However, without careful examination of the provided coverage, the property manager may have a false sense of security about the extent of coverage the tenant posses. Property managers need to know what kind of evidence of insurance to request based on the risk involved.

If you are a property manager/owner and leasing space to a manufacturer of dynamite, you definitely need a certified copy of the tenant’s entire insurance policy with yourself endorsed as an additional insured. However, in less risky circumstances, asking for the tenant’s entire policy is not practical, yet you still need to verify coverage.

For these situations, The Agency Company Organization for Research and Development (ACORD) has developed standard forms for providing evidence of insurance. The most common of these forms are the ACORD 25 Form which is a “certificate of insurance” and the ACORD 27 Form which is the “Evidence of Property Insurance.” The ACORD 27 Form is the stronger of these two forms. It was developed initially to inform lenders that any claim check issued would be in the name of both the named insured and the mortgagee or additional insured (Hoffman, 1997). This form, however, is not designed to show any liability coverage. The ACORD 25 Form has two disclaimers that decrease the strength of this form: it cannot modify the policy and the producer only needs to “endeavor to” provide notice of cancellation. This form is used to show liability policies and show additional insured.

Most leases require tenants to provide evidence acceptable to the landlord that they are maintaining property coverage on tenant improvements, general liability coverage, and have identified the landlord as additional insured. The following are types of evidence property managers can require of tenants:

1. A certified copy of property and liability policies with endorsements to each listing additional insureds.
2. An uncertified copy of property and liability policies with endorsements to each listing additional insureds.
3. An ACORD 27 Form showing property coverage and an ACORD 25 Form showing liability coverage with the words “endeavor to” show cancellation crossed out and initialed by the executing agent. Both forms list additional insureds. Copies of the actual endorsements to the policies evidencing additional insureds accompany these forms.
4. An ACORD 27 Form evidencing both property and liability coverage listing additional insureds. (Note: This is not a proper use of the ACORD 27 Form.)
5. An ACORD 25 Form showing both liability and property coverage with the words “endeavor to” show cancellation crossed out and initialed by the executing agent. (This is also not an appropriate use of the ACORD 25 Form.)

Certified policies are the strongest evidence of insurance, yet requesting these policies can take up to 60 days to generate. A certificate of insurance may be provided during the interim periods.

General tracking of ACORD forms is a more reasonable use of a risk manager’s time. It would be more efficient to review certificates and flag policies that merit further investigating. When reviewing policies and forms, the most important details to review the amount of coverage, strength of carrier, and expiration of policy.

Reference: Hoffman, L. (1997). Avoiding certificate of insurance traps. Journal of Property Management, 62.6, 74-75.