Super Powers, Notice of Cancellation and Certificates of Insurance

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If you had a super power what would it be?

Last week the nation celebrated Super Power Day. As many people reflected on the question and debated whether it would be better to have supernatural powers or the ability to fly, I was thinking back to when Certificates of Insurance had super powers - Notice of Cancellation super powers.

In 2009 an ACORD Working Group made some significant changes to ACORD forms, including removal of the provision requiring insurers to "endeavor to provide" notice of cancellation to certificate holders. ACORD took this step because the provision gave super powers to the COI. It said, essentially, that even though the policy language doesn't state that I, the insurer, must inform you, the certificate-holder, when the insured's policy is cancelled or changed, I will do so anyway. Why? Because Super COI said so.

Unfortunately, this scenario exposed agents and brokers to potential Errors and Omissions claims.

You can imagine a situation in which a contractor forgoes securing insurance for a subcontractor, believing that the subcontractor is sufficiently insured because the sub furnished a valid COI. Suppose a loss caused by the sub occurs, the contractor finds out that the sub is no longer insured and sues the broker for not fulfilling the "obligation" outlined in the COI that the sub obtained from the broker. The broker, obligated only to adhere to policy provisions, never informed the certificate holder that the subcontractor's policy was cancelled for nonpayment. Why should the broker endeavor to do anything on behalf of a non-client, after all?

ACORD's solution certainly seemed fair. But where did it leave certificate holders, who need to know when a policy has been cancelled or changed?

Some certificate issuers simply use pre-2009 forms. However, brokers are licensed to issue certificates only on current, approved ACORD forms. Outdated forms may not comply with current regulatory requirements and, therefore, leave the broker vulnerable to those E&O claims. And, most insurance agreements prohibit the agent from issuing a certificate that has been modified but not approved in writing by the insurer.

Fortunately, there are a number of regulator-sound remedies:

  • Provide a copy of the policy's cancellation provisions to the certificate holder.
  • Endorse the policy with additional notice of cancellation provisions. Insurers may resist this option or may charge a fee for doing so which, in turn, could lead to a delay or cause the insured to incur additional costs to a project.
  • Instead of - or in addition to - asking your insurer to endorse the policy, contractors could modify their contracts to include Notice of Cancellation provisions and put an internal contract service notification system in place.
  • Include cancellation language that aligns with the policy in the Description of Operations field on the certificate itself or on the ACORD 101 Additional Remarks schedule. Be sure to use the exact same language used in the underlying policy.
  • Request updated COIs from downstream parties on a regular basis, for example, every thirty days or when the downstream party is due to receive payment. This may add to the administrative burden but it would provide notice of changes and cancellations.

Sometimes super powers aren't all they're cracked up to be. Sometimes they do more harm than good. Remember Bane, the character from Batman who caused all kinds of havoc in Gotham when he let Joker and other the bad guys out of prison?

No, it's probably better not to try to be something you're not, especially when you're a Certificate of Insurance.

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