A business auto insured asks their agency to issue a certificate of insurance (COI) to a third party that includes a 30-day notice of cancellation to the certificate holder. The “Cancellation” field on the ACORD 25 says:
“Should any of the above described policies be cancelled before the expiration date thereof, notice will be delivered in accordance with the policy provisions.”
However, in the “Description of Operations / Locations / Vehicles” field, the following was added by the agency:
“When this policy is cancelled, the Company agrees to provide 30 days advance notice to the Certificate Holder.”
There is no mention in any policy forms about cancellation notice to a certificate holder.
During the course of the policy, the insured decides to cancel and move their account to another insurer represented by the agency. The old policy is released with a requested cancellation date by the insured and a new policy is bound with the other carrier. Subsequently, the old carrier has invoiced the insured for $4,800 for an additional 35 days of coverage. The old insurer says they are obligated to extend coverage for the 30 days required by the COI plus 5 days to allow for mailing.
The agency has asked if this is appropriate. My response was as follows:
The reason the certificate holder wants notice of cancellation is to be made aware that coverage is about to terminate. In this case, there is no lapse in coverage since one policy was replaced by another one. In making a case to support the obvious, note that the COI says [EMPHASIS added]:
“This certificate is issued as a matter of information only and confers NO RIGHTS upon the certificate holder.”
The certificate holder isn’t contractually entitled to anything (there is another statement to this effect at the end of the paragraph). There might be an argument that the certificate holder has some standing under the common law principle of promissory estoppel (detrimental reliance), however they would have to demonstrate damages and the reality is the coverage is simply being moved from one insurer to another, so this does presumably not create any kind of problem for the certificate holder such as breach of contract.
The purpose of cancellation notice is to give the certificate holder advance warning when coverage terminates for good. In this case, it’s simply moving from one carrier to another, so why would the certificate holder really care? The COI goes on to say:
“This certificate does not affirmatively or negatively amend, extend or alter the coverage afforded by the policies below.”
This statement is supported by the next to last sentence in the paragraph in the Coverages section of the COI. The policy itself does not provide for any notice to the certificate holder. This is simply something the carrier has agreed to do outside the insurance contract. In some states, this may be patently illegal and an agreement for notice of cancellation must be in accordance with policy terms and conditions. A COI cannot provide any greater insurance contract rights (such as notice of cancellation) to anyone than explicitly provided by the policy itself.
The policy itself says this with regard to cancellation by the insured [emphasis added]:
“The first Named Insured shown in the Declarations may cancel this policy by mailing or delivering to us advance written notice of cancellation….Notice of cancellation will state the effective date of cancellation. The policy period will end on that date.”
The insurance contract explicitly states that it ends with the cancellation date provided by the insured. It does not make any allowance for extending the policy period at the insured’s expense because the insurer has agreed to do so with a third part. It does not matter what other extracontractual obligations the agency or insurer has incurred via a COI. That is not binding on the insured, only the terms of the insurance contract itself.
The statement in the Description of Operations field says, “the COMPANY agrees” to provide notice. This appears to be an agreement between the carrier and the certificate holder (IF, in fact, it even constitutes an agreement per se). There is nothing on the certificate that indicates the INSURED has agreed to provide notice, so how can the insurer insist on the insured paying for something the insurer has said IT will do.
Again, the material issue here is that cancellation is not detrimental to the certificate holder in any way. Since coverage will be continuous, there is no real and practical reason to provide a “cancellation” notice to the certificate holder. Simply advising the certificate holder, if desired, that coverage has been moved from one insurer to another should suffice. This assumes that the new insurance program meets the requirements of the certificate holder under whatever contract initiated the certificate.
But, even if it doesn’t, while I’m not a lawyer, I don’t see any legal obligation to provide cancellation notice and certainly no equitable obligation of the insured under the insurance contract to pay an additional premium for something not conditioned in the insurance contract.
What do you think? Feel free to Comment below.
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Bill Wilson
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What was added by the agency regarding 30 day notice to the Certificate Holder could cause them costly E&O angst as this is not part of the policy form. But I do agree where there was no lapse in coverage and this was replacement coverage I don’t see how the insured can be expected to pay for the 35 days so noted.