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Fraudulent Certificates of Insurance continue to be a source of concern.

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Although almost all U.S. states now have laws on their books regulating the issuance of Certificates of Insurance (COIs), problems continue to plague the process and fraud remains a major concern.

According to the Independent Insurance Agents and Brokers of America, errors and omissions claims involving COIs continue to increase. Most of these claims involve commercial general liability coverage.

The biggest problems are associated with failure to add or properly identify the Additional Insured. Misrepresenting coverage on the COI that doesn't actually exist is the second leading cause.

State regulators are pursuing both insurance agents and their clients and courts are levying stiff fines and sentences:

  • In New Jersey, a contractor was sentenced to a one-year jail term for filing a false COI.
  • In California, an insurance agent was arrested for issuing phony COIs and is currently out on bail pending trial for insurance fraud.
  • A Pennsylvania roofer was sentenced to two-year's probation, fined $5,000 and made to perform 75 hours of community service for issuing a false COI.
  • A Michigan insurance broker was jailed and fined $20,000 for selling fake certificates of insurance.

As a result of these conditions, the risk exposure of the Certificate Holder has increased and the need for vigilance in the entire chain of COI processing is more important than ever. The collection, evaluation and communication between the Certificate Holder, the Insured, and the Insured's broker must be properly and consistently handled. Personnel must be trained to correctly assess compliance with the coverage requirements associated with the Insured. In many cases, a careful review of requirements indicated in the contract may be appropriate.

To protect against fraud, questionable COIs, such as those with erasures, non-matching type faces or other suspicious markings must be rejected. As COIs can only be issued from the Insured's broker, Certificate Holders must ensure that the broker was the actual source of the document.

Although almost all U.S. states now have laws on their books regulating the issuance of Certificates of Insurance (COIs), problems continue to plague the process and fraud remains a major concern.

Risk management best practices mandate the collection and evaluation of COIs from a very broad community of service providers, vendors, contractors, tenants, suppliers and franchisees. This often imposes a significant administrative burden on the Certificate Holder to accurately manage the process. It is a labor- intensive chore that often leads to poor rates of compliance and unsatisfactory outcomes.

Adding the element of potential fraud to the mix only increases the need for the Certificate Holder to imbue the task with an extra measure of diligence.

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