Recently, an agent question was brought to my attention:

“When are we obligated to notify certificate holders of a cancellation, when the finance company says it cancelled or when the insurer officially sends out their formal notice of cancellation? Our agency’s practice has been to send certificate holders for that policy term a revised certificate with the word ‘CANCELLED’ underneath the policy effective date and to show the cancellation date as the expiration date. That is only done after receiving the final cancel from the insurer or the finance company. And the revised certificate is updated to show the new certificate issue date.”

The agent also had questions about what language to place on the ACORD 25 regarding additional insured status.

Agency E&O experts advise agents not to provide notice of cancellation to certificate holders. 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.

No ISO additional insured endorsements require notice to the certificate holder.

The agency’s business relationship is with their insured, not his or her business partners. The customer no doubt asked the agency to issue evidence of insurance but likely did not authorize evidence of no insurance and the certificate creates no contractual obligation to do so…read the disclaimers on the ACORD 25.

Also, from an E&O standpoint, if you establish a normal operating procedure of notifying COI holders of cancellations but let one slip by and they sue you, you could potentially be in trouble for that omission. While there is likely no contractual basis for the suit, there might be an assertion of tort liability for detrimental reliance.

As for COI verbiage regarding AI status, I would always lean toward minimizing the addition of ANY wording on a COI because it can be misinterpreted or, even if not, the COI holder may allege misrepresentation. For example, referring to an ISO AI endorsement as a “blanket” form when that name does not appear anywhere on the ISO form. “Blanket” can mean different things in various policy forms. I think it’s always better to just include a copy of the AI endorsement.

Here is an article I wrote:

Certificates of Insurance and Agent vs. Insurer Liability

It discusses the issues of sending copies of certificates to insurers and sending AI endorsements to AIs, including case law supporting both practices. It also mentions the “detrimental reliance” issue with case law citations involving E&O claims.

There is significant case law that adding information to a pre-printed form may be viewed as modifying language on that form, perhaps even the ACORD disclaimers, so I would try to avoid elaborating on anything related to coverage. If necessary, send them an electronic copy of the policy…with the insured’s permission, of course.

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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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