An agency moved a commercial account from one carrier to another with no lapse in coverage. A certificate of insurance had been issued to one of the insured’s customers that indicated that 30 days notice of cancellation would be provided to the certificate holder. As a result, the old carrier insisted that coverage be maintained for an additional month to comply with this notice, though the policy itself did not provide notice of cancellation to anyone other than the First Named Insured. The result was an extra $4,800 premium charge on the old policy. Should the customer be responsible for the additional premium?

From the ACORD 25 certificate:

“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 not create any kind of problem for the certificate holder. The equitable 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?

“This certificate does not affirmatively or negatively amend, extend or alter the coverage afforded by the policies below.”

This statement is supported by the last sentence in the paragraph in the Coverages section of the certificate. Apparently, according to the agent, the policy itself does not provide for any notice to the certificate holder. This is simply something the carrier has agreed to do. In some states, this is patently illegal and an agreement for notice of cancellation must be in accordance with policy terms and conditions. A certificate cannot provide any coverage or condition not in the insurance contract itself, including cancellation notice.

In the Description of Operations field, it says, “When this policy is cancelled, the Company agrees to provide 30 days advance notice to the Certificate Holder.” However, the certificate itself, in the Cancellation box, 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.”

According to the agent, the only cancellation notice in the policy refers to cancellation by the insurer with notice to the insured and cancellation by the insured with notice to the insurer. 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 that the insured pay for something the insurer has said extracontractually that it will do.

Again, the real 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. 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 requirement 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 obligation of the insured under the insurance contract to pay an additional premium for something not conditioned in the insurance contract.

Photo by atgw

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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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