I recently got this email from an Illinois agent:

“I have some procedural concerns with a carrier’s directive requiring that in order for an entity to be named as an additional insured that there must be a written contract. The main question I have is, is it the responsibility of the agent to actually be presented with a copy of the written contract or the insurance requirement section from the contract?

“My contention has been that this requires the agent to interpret contract language. And be held accountable if there are other conditions outside of the insurance section of the contract that might have an effect on the requirements within the section.

“I believe that it is outside of an agent’s ‘expected’ expertise to also be a contract lawyer. I have always felt that if the terminology ‘required by written contract’  is conveyed to the insured and they state to us (and we document it) that there is a contract, that should be enough for us to issue a certificate.”

The primary ISO AI endorsements that require a written contract are the CG 20 33 and CG 20 38, not the CG 20 10, CG 20 26, etc., though the carrier can require any condition they want for extending AI coverage.

As for reviewing contracts like leases, loan agreements, and construction contracts, that’s an agency business decision. The “ivory tower” E&O caveat is don’t do it because, as you are aware, it quite possibly increases the agency’s E&O exposure. Ideally, a customer’s attorney reviews these things since that’s what they’re trained to do in contract law. Then they advise what the insurance requirements should be.

But we know that the reality is that the vast majority of contractors, for example, don’t even read the contract, much less have an attorney review it. Many of them really don’t care what it says…they want the work regardless. Until they find out they’ve agreed to indemnify for something they didn’t insure. The good side of reality is that no insurance program fully qualifies with the vast majority of indemnification agreements since so many require indemnity for any and all adverse events.

So, the practical recommendation is to assist in contract analysis because, otherwise, how do you know what the insured’s exposures are and how they can best be insured or risk managed? Here is an article about the types of insurance- or indemnity-related provisions found in loan agreements (you will need to have access to the Big “I” Virtual University):

Insurance Requirements in Commercial Property Loan Agreements

The author has written about commercial leases he’s seen for tiny shopping center vendors where they incur six-figure liabilities in the lease that agents often overlook because they didn’t review the lease or didn’t review it beyond a single “insurance” paragraph, for example, examining the D&D (Damage and Destruction) clause.

Clearly, reviewing contracts requires training, skill and experience…it is far from a clerical function. Take a look at this “Reviewing Contracts for Insureds” section of a white paper I wrote over 10 years ago which includes a sample disclaimer:

Certificates of Insurance Issues and Answers” (p. 15)

I know agencies where skilled producers are better at reading and analyzing complex construction contracts than most attorneys. Being able to review contracts for customers gives you a clear competitive advantage but only if you know what you’re doing. If you don’t, then you are probably best advised, at least from an E&O standpoint, to avoid this practice and advise customers and prospects to “caveat emptor.” And, regardless of your level of expertise, if you perform contract review, use a disclaimer.

Photo by sarae

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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