I regularly read three attorney blogs/newsletters. One of them is from the Merlin Group, a policyholder law firm. Recently, they posted an article about a Washington state court case involving the question of who, if anyone, is liable for incorrect information on a certificate of insurance (COI). The issue at hand involves a conflict between established case law that holds an insurer accountable for the representations by their agents vs. the premise that a COI, especially one with disclaimers, cannot modify the coverage provided or not provided by the policy it represents. The case in question is centered on a third party seeking additional insured status claimed by a COI entry but that was allegedly not effected on the policy itself.

You can read Merlin’s analysis at the link above, along with the court’s discussion that is linked from the article. No judicial decision has been reached yet, but Merlin promises to update the case when that happens and I’ll do the same for this article. The issue is whether inaccurate information on a COI is actionable and, if so, is the carrier ultimately responsible for such representations by their agent.

As I’ve pointed out in past articles on legal liability for inaccurate COIs, one legal course of action that has had some measure of success in COI litigation involves detrimental reliance, otherwise known as promissory estoppel. For example:

  • Sumitomo Ins. Co. v. Southern Guaranty, 2004
  • Marlin v. Wetzel Country Board of Ed., 2002
  • Niagra Mohawk v. Skibeck Pipeline, 2000
  • Brown Machine Works v. INA, 1995
  • Moore v. Energy Mutual Ins. Co., 1991
  • Horn v. Transcon Lines, Inc., 1990

It’s no secret that virtually all insurers tell their agents to NOT send a copy of the COI when issued. The reason most often cited is the time and expense, though I’ve argued to underwriters before that they should use these documents to QC their agency force…they would be amazed at some of the things their agents are telling others on COIs, agent affidavits, or other documents.

The present case illustrates another reason why the insurer might not want to be copied on COIs. In cases like this, having never had access to the COI could be a basis for denying any culpability by the insurer for the information on the COI, as illustrated in part by a couple of other court cases:

  • Marlin v. Wetzel County Board of Education, 569 S.E.2d 462 (West Virginia Ct. App., 2002)
  • Erie Insurance Group v. National Grange Mutual Ins. Co. (NY Sup. Ct., June 2009)

I’d call this the Sgt. Schultz “I Know Nothing…NOTHING” Defense. This is just one reason why E&O experts recommend that agents continue to copy insurers on COIs. And, again, if I were an underwriter I’d want to at least spot check these COIs to see what erroneous or inappropriate information is being put on them by agents.

And while we’re on the subject of sending documents to others, rather than add extraneous verbiage on a COI regarding additional insured status, I’d simply provide a copy of the AI endorsement. Doing so likely or at least possibly places the onus for reading it on the additional insured. 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.”

  • 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)

It will be interesting to see how the court rules in the present case. I’ll update this article as warranted.

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Bill Wilson

Founder at InsuranceCommentary.com
One of the premier insurance educators in America on form, coverage, and technical issues; Founder and director of the Big “I” Virtual University; Retired Assoc. VP of Education and Research from Independent Insurance Agents & Brokers of America. Reprint Request Information

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