To paraphrase Einstein, an insurance article should be as short as possible, but no shorter. I try to limit most of my blog posts to only a few hundred words in order to minimize the reader’s investment of time and, perhaps more important, to make it more likely that someone will read an article that will benefit them. THIS blog post is a rare exception in that it is longer than most by about 1,500 words. However, I cannot overly stress the importance of the information in this article and why it should be read by everyone involved in any way with certificates of insurance.
I’ve been preaching to agents and insurers for years that adding verbiage to a certificate of insurance is dangerous. There is an existing body of case law where such entries have triggered nonexistent coverage, often based on legal premises such as detrimental reliance (aka, promissory estoppel). These warnings were recently reinforced by an important decision from the Washington Supreme Court, T-Mobile USA v. Selective Ins. Co. of America, No. 96500, 2019 WL 5076647 (Wash. Oct. 10, 2019).
I first wrote about this court case last November and promised to update it when a decision was reached:
“Certificates of Insurance and Agent vs. Insurer Liability“
The most concise explanation of this decision I’ve seen is from the Merlin Law Group (whose blog post prompted my original article on this linked above) can be found here:
“Can a Certificate of Insurance Change the Terms of An Insurance Policy?“
The article also links to the actual court case which you can access directly by CLICKING HERE.
I STRONGLY encourage you to read the article and the court case for the details. Below is my very brief recap and what I believe are the learning points of this case.
In a nutshell, the Selective agent indicated in the Description of Operations field on an ACORD 25 certificate of liability insurance that T-Mobile USA was an additional insured when, in fact, such status was not actually provided by the policy. When T-Mobile USA was sued and coverage was denied by Selective, litigation ensued.
When the federal Ninth Circuit heard this case, it ruled that Selective was bound by the apparent authority of its agent and the agent’s assertion on the certificate of insurance that T-Mobile USA was an additional insured. However, this conflicted with disclaimers on the certificate. So, the court requested certification from the Washington Supreme Court on whether, under Washington state law, an insurer is bound by representations made by its authorized agent in a certificate of insurance with respect to a party’s status as an additional insured under a policy issued by the insurer when the certificate includes language disclaiming its authority and ability to expand coverage.
An Amicus brief had been filed by the American Property and Casualty Insurance Association arguing that holding Selective to the representation of its agent would conflict with public policy, effectively permitting the certificate of insurance to supplant the terms of the policy. According to the brief:
“If fundamental contract certainty can be so easily undermined, individual issuers will presumably be forced to consider declining to authorize the use of any [certificates of insurance], which would represent an unfortunate—and unnecessary—end to the use of a tool that many stakeholders find useful when appropriately limited to its intended use as an ‘information-only’ communication that clearly explains that status.”
This Washington Supreme Court disagreed:
“The public policy of the State of Washington actually compels the opposite conclusion. Insurance companies act through, and are bound by, the representations of their agents made with actual or apparent authority. Enforcing those authorized representations has a modest aim: it provides the principal with an additional incentive to ensure that the agent’s representations—made in person, on the phone, or in writing—are true.
“Even though American Property and Casualty Insurance Association frames its argument in terms of certificates of insurance, the argument is actually an attack on the rule that an insurance company is bound by the acts and representations of its agent. But this court adopted that rule in 1933 because it was good public policy then, and we hold that it remains good policy now.”
In other words, the Washington Supreme Court answered the Ninth Circuit’s certified question by concluding that “an insurance company’s agent who makes an authoritative representation binds the insurance company, even when the specific representation is transmitted via a certificate of insurance and accompanied by general disclaimers.”
The court effectively ruled that pre-printed boilerplate disclaimers in a certificate of insurance are overridden by the specific verbiage entered on a certificate of insurance by the agent:
“A basic rule of textual interpretation is that the specific prevails over the general….We follow this rule when we interpret statutes and contracts….and for that reason, we follow this rule when we interpret certificates of insurance….
“Here, the preprinted disclaimers are general in nature. They purport to disclaim virtually every bit of information provided by the certificate. By contrast, the additional insured statement that the agent wrote in specifically refers to certain areas of policy coverage and makes a discrete representation that ‘T-Mobile USA Inc., its Subsidiaries[,] and Affiliates’ ‘is included as an additional insured.’….This specific written-in additional insured statement thus prevails over the preprinted general disclaimers.
“That conclusion respects the specific purpose for which the certificate was issued: to inform T-Mobile USA, its subsidiaries, and its affiliates that they are additional insureds under the policy. Giving effect to the disclaimers, by contrast, would render issuance of the certificate—and the specific representation within it—pointless. Contrary to Selective’s argument, the certificate would have no informational value at all. All it would do is ‘”set a trap”‘ for the certificate holder.”
If you review the actual decision linked above, you’ll find that there was a strongly worded dissent from one of the justices that supported the application of the certificate disclaimers to confirm that the certificate was an informational document, not a warranty of any kind. In addition, by effectively allowing the certificate to modify the insurance contract, the court was allowing the certificate to serve as an unfiled insurance policy form, possibly in violation of insurance statutes. It is not known if the policy form had language similar to the ISO IL 00 17 Common Policy Conditions form:
“This policy contains all the agreements between you and us concerning the insurance afforded…This policy’s terms can be amended or waived only by endorsement issued by us and made a part of the policy.”
What’s interesting is that there was nothing in the decision that appeared to consider other applicable state statutes that might govern. For example, WAC 284-30-355 says:
(7)(b) Notwithstanding any requirement, term, or condition of any contract, the insurance coverage provided by the referenced policy of insurance is subject to all the terms, exclusions, and conditions of the policy. A certificate of insurance does not confer new or additional rights beyond what the referenced policy of insurance provides. [Emphasis added]
Should this statute, in its entirety, not govern or at least be a part of this decision?
So, what are the lessons learned from this decision?
Lesson #1: Minimal verbiage should be provided on a certificate of insurance by qualified individuals
When asked in the past, “What statements can I put on a certificate of insurance?” my response has usually been that, from a business decision standpoint, you can put anything you want that isn’t patently illegal or a misrepresentation of the policy terms. I say that being well aware of the pressure often put on agents to add very specific, verbatim language on a certificate of insurance.
The problem is, that language is often ambiguous, not based on any policy language, and can be misinterpreted. In addition, mistakes happen. For these reasons, it is good E&O practice to limit any extraneous information on a certificate of insurance and, when at all possible, only include language taken verbatim from the policy.
Needless to say, certificates should only be issued by qualified, trained staff and QC audits should be conducted regularly. And, rather than adding commentary on the certificate, it is far better to simply refer the certificate holder and/or additional insured to the actual policy forms by including them in the transmittal….
Lesson #2: Policy forms (particularly additional insured endorsements) should be provided to certificate holders and AIs
Courts have held that insureds seeking coverage that doesn’t exist have an obligation to read the policy forms in their possession. For example, Admiral Insurance Company v. Cresent Hills Apartments, 328 F.3d 1310 (U.S. Ct. App. 11 Cir. 2003), citing Brooks Brown Ins. Agency, Inc. v. Harden, 236 Ga.App. 781, 513 S.E.2d 755 (1999) where the court opined:
“…an insured has a duty to take certain steps for its own protection such as reading their policies, certificates of insurance or any cancellation notices in their possession.”
Another case is Alabama Electric Cooperative, Inc., et al. v. Bailey’s Construction Company, Inc., Sup. Ct. (2006) where the court observed:
“The Court concludes that [the client], claiming to be an additional ‘insured’ under [the policy], should be held to the same obligation as a named insured to review a policy of insurance on which it seeks to rely, and its reliance solely on the agent’s certificate of insurance is not reasonable under the circumstances….”
“Where an entity requires another to procure insurance naming it an additional insured, that party should not rely on a mere certificate of insurance, but should insist on a copy of the policy.” – Couch on Insurance (3d ed. 1997)
Lesson #3: Agents should send copies of certificates of insurance to insurers AND the insurers should review them
It is no secret that virtually all insurers tell their agency forces to NOT copy them on certificates of insurance. I have always told agents, as have their E&O carriers, that they should continue to send certificates to insurers regardless of such mandates. The present case is one of many examples of why this is a sound E&O practice. There are other cases where insurers have used the excuse that they never saw the offending certificate of insurance.
For example, in Marlin v. Wetzel County Board of Education, 569 S.E.2d 462 (West Virginia Ct. App., 2002), the insurer denied any liability for wrongful certificate information:
“[T]he insurance company asserted that it never received the certificate of insurance or any other documents suggesting the insurance policies needed to be amended.”
“[T]he insurer argues that it had no knowledge of the certificate’s existence….”
In another case, Erie Insurance Group v. National Grange Mutual Ins. Co. (NY Sup. Ct., June 2009), additional insured status was contingent upon the issuance of a certificate of insurance:
“Each of the following is added as an Additional Insured…[a]ny general contractor, subcontractor or owner for whom you are required to add as an additional insured on this policy under a written construction contract or agreement where a certificate of insurance showing that person or organization as an additional insured has been issued and received by [NGM] prior to the time of loss.”
AI status was denied because the carrier did not “receive” the certificate. Such requirements are not uncommon in the construction industry, especially in the E&S marketplace for automatic endorsements that condition coverage in the case of oral contracts on certificate issuance.
Notice to Insurers: PLEASE read the following paragraph….
I have suggested to insurers for years that the failure to review the certificates of insurance issued by their agents, at least on a QC basis, is a foolish time and expense saver. Insurers should WANT to know what their agents are representing to insureds and other parties that may be unwise, misleading, misrepresentative, or even fraudulent. Otherwise, as this case demonstrates, the carrier may end up being held liable for its agents’ actions. Insurers have a vested self-interest and, arguably, a moral and ethical obligation to work closely with their agency partners to make sure they are properly educated on the issuance of certificates of insurance and follow reasonable QC procedures of the carrier that are based on sound business principles that are fair to insureds and other parties in business relationships.
December 5, 2019 Webinar:
“Certificates of Insurance…Or How I Got a Job in the Prison Laundry”
Talk about good timing. On December 5, I’ll be doing a two-hour webinar on certificates of insurance and related contractual liability and additional insured issues for the Boston Insurance Library. During this webinar, I’ll discuss the Washington Supreme Court case along with many other relevant topics.
The cost is only $65 ($45 for library members) and it’s a great cause. If you’re in Massachusetts or New Hampshire, the program is approved for 2 CE credits.
For more information and/or to register, CLICK HERE.
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Question from a reader:
“The pitfalls for the insurer are clear, but I’d love an addendum to this post discussing the possible consequences for the agent who made this misrepresentation. In what ways might this have violated their Producer Agreement? Can the insurer file a cross-complaint naming the agency as co-defendant? (Or could they have?) Besides losing their appointment with Selective, are there other potential ramifications (financial, legal, professional…) for this agency’s negligence? Or did they dodge a bullet because the court ultimately ruled the way it did? This is such a great piece for training at the agency level, but I’m wary of staff getting the idea that the penalty for this behavior is confined to the insurer!”
Since what the agent apparently put on the COI caused the insurer to pay an otherwise uncovered claim, I’m guessing they may have legal recourse against the agent who hopefully has put his or her E&O carrier on notice.
At the same time, as I mention in the article, insurers have absolved themselves from any involvement in the certificate process and, as I told someone yesterday, they’ve taken a Stalag 13 Sgt. Schultz “I know nothing” approach by telling their agents they don’t even want to see a copy of the COI. I think that’s incredibly foolish, as this decision demonstrates. I still suggest to agents they should copy carriers on COIs. And carriers should at least QC their agents’ certificate, at least on a “selective” (no pun intended) basis.
I believe a majority of courts have upheld the ACORD disclaimers, but if others take the same view as Washington, more carriers and agencies might get serious about the process.
I do not subscribe to the view that an Agent/Broker should have the responsibility to issue, amend or add verbiage to a certificate of insurance. Prudently, that should be the responsibility of the issuer of the insurance policy itself, the insurance company. This view is taken against the background that not all personnel in an Agency/Broker office fully comprehend the ramifications of a certificate of insurance. If the insurance companies, choose to sub-contract this responsibility to their Agents/Brokers, it is going to be difficult to exonerate themselves, from any potential liability, that may arise from this practice.
As we are aware, a certificate of insurance, is merely evidence of the contract of insurance. It is not the contract of insurance. Some people, including, insurance practitioners, unfortunately, treat it as if it is an extension of the contract of insurance. Until insurance companies, in the US market, start treating certificate of insurance, with the enlightenment, that it truly deserves, we will be having more legal cases, involving the use of certificate of insurance.
“I’m curious. What made insurers to stop reinforcing that they be copied in all COI requests?”
I believe in most cases the sheer volume of certificates and the associated costs. I would imagine it’s less expensive to incur decisions like this rather than absorb the daily cost of assuring that certificates being issued on behalf of the carrier are reasonably accurate representatives of the underlying policies.
I would expect this kind of miscarriage from a west coast state. How typical. The insurannce comapny has no proivity of contract regardless of what a cert or an agent represent Here the court has found for illusory coverage by denyinng the basic prinsiples of contratc law For instance was their an agreement between the parties or consideration exchanged? No. That alone invalidates the ruling. I hope it gets appealed to a real court and it is breathtaking I refer to the supreme court as a real court. Howver, the carrier will certainly be indemnified by their representative possibly by the later’s e and o POLICY. A bad ruling from a corrupt and contemptible court and state.
“Regarding the COI and T-Mobile, is the actual wording used on the certificate available anywhere? We always reference the form number that gives the AI status, which states how the AI status is given (i.e. CG 20 38). I’m wondering if this would have solved the problem.”
I’m sure the COI was an exhibit and in the court record, but exhibits are included in case law summaries unless quoted specifically.
My recommendation is to include the actual endorsement and not just a reference to it. The AI likely does not have a copy of the CG 20 38. As the court cases I referenced in the article say, the key is putting the policy form(s) in the hands of the AI…in these jurisdictions, insureds have an obligation to read the policy and can’t use ignorance as an excuse if they have a copy.
We do the opposite. We do not reference the form on the Certificate* but we do attach a copy. The reason we don’t reference the form is that to issue a set of Certificates at renewal would require us to go into each and every Certificate and change the form number if the form changes (and they change frequently).
Makes sense. Thanks for the feedback!
Good commentary and advice…unfortunately, I don’t think such caution will dissuaded the ongoing abuses of the COI. We need to move on to a different format.
There’s likely something like this already but I have often suggested the carrier issue an internet-based Certificate Copy (or name it something else) but the document would redact all PII and premium related information and would be posted at a cloud-based site where the agency can manage or delegate access to the site (user name + password and duration of access) on behalf of its policyholders.
It would also enable a fee to be charged if permitted or desired. Access could be granted for free once we re-orient the AI endorsement as a premium charged to the additional insured requesting such coverage.
I’ve advocated that for years. Most carriers don’t seem interested. Many ignore the whole COI issue because they don’t want to assume the expenses involved…they let the agency do that. They also don’t see the downside because COI lawsuits aren’t generally successful except for aberrations like this one and some successful detrimental reliance claims. They also blame “legacy systems” for the difficulty in doing this. The exceptions I most often hear about are generally regional carriers with a real agent partnership approach.
Our office standard for AI wording is not to say ‘per written agreement’ like many. We simply say ‘certificate holder’ is an AI per terms of endorsement XXXXX and attach the endorsement to the certificate. We do this because clients will say there’s an agreement, but not produce it. So, we simply reference the terms of the endorsement and not definitively say someone is an AI. We also see wide variance in AI wording, one company’s blanket AI is not the same as another’s. Agents need to know their forms, and yet, many have no idea.
Greg, you are wise. I’ve seen that so many times where someone ties coverage to the requirements of the contract by phrasing the wrong way on the COI. Yes, IF you must make a comment, simply refer them to the policy form(s). THEY wrote the contract so let them determine if the coverage you’re providing meets THEIR requirements.
Hey Bill, that T-Mobile certificate case. Would you call it an anomaly or do you see it happening a lot.
I see it being cited a lot by policyholder attorneys and the E&O attorneys will cite the dissenting opinion and the volume of contrary decisions. There will probably be some sympathetic courts, mainly state and not federal ones, so expect carriers to do what they can to move litigation to the federal courts.
I believe (going from memory, admittedly dangerous) that the Alabama case I cited involved an agent who essentially admitted he outright lied on the certificate, but the court still upheld the disclaimers. I suspect, though, that there are bad faith and other statutes that the agent would or could get hit with, at least by regulators.
What I always thought would be a path to successful COI litigation is detrimental reliance or promissory estoppel. There have been some decisions finding liability on the part of the agent based on that because it has nothing to do with any contractual issues.
All of this being said, the court makes a point…really, how reliable is a certificate of insurance? I believe the vast majority are issued in good faith, but mistakes are made. As I tell upstream parties, the ONLY way to know with any degree of certainty is by reading the policy forms.
I wonder sometimes whether the BILLIONS spent on issuing certificates, verifying coverage of business partners, etc. could be better invested.