The Certificate and Evidence of Insurance forms which ACORD made effective in late 2009/early 2010 have raised alarm among insurance certificate holders and the insureds that must provide them. Unless insurers issue manuscript endorsements to their policies (which is unlikely), insurers no longer make any pledge that they will even attempt to notify most certificate holders if the policies are cancelled. The new certificate forms have eliminated the assurance that the insurer would “endeavor to mail __ days written notice to the certificate holder.” They simply state that “…should any of the above described policies be cancelled before the expiration date thereof, notice will be delivered in accordance with the policy provisions.”
What does that mean to certificate holders under standard insurance policies?
- Liability and auto – Even if a certificate holder is an additional insured, it will not be notified if the policy is cancelled. Only the First Named Insured will be notified.
- Workers compensation – Certificate holders will not be notified of cancellation, since the policy requires the insurance company to notify only the covered employer.
- Property – Mortgagees and loss payees on standard property policies will be notified – 10 days before the insurer cancels for nonpayment, 30 days before it cancels for any other reason and 10 days before it nonrenews the policy (unless modified by state requirements). Other certificate holders, even additional insureds, will not be notified.
- All policies – Certificate holders, even additional insureds, will not be notified if the insured itself cancels the policy.
How should insurance requirements in contracts be changed in order to respond?
- Contract language requiring insurance certificates to state that “__ days notice of cancellation be given” and requiring that the “endeavor to” language in the certificate be deleted, is no longer applicable. Even if changes are made to the certificate, ACORD has made it exceedingly clear that changes to the certificate do not change the policy.
- The contract should require that the insured party provide immediate notice to the owner, lessor, etc. if the insured entity receives notice of cancellation or nonrenewal from its insurer. This provision is especially important since many insurers will not be willing to comply with the recommendations below, especially for smaller insureds. Unfortunately, this has the obvious drawback of depending on the very party who is non-performing to report the non-performance.
- Contracts should require that the insured’s policies be endorsed to meet the certificate holder’s reasonable requirements. (However, as stated above, not all insurers will be willing to cooperate.) If the insurer is somewhat cooperative, it may be willing to extending the same notification rights to the certificate holder that it gives to the first Named Insured. Below is sample manuscript endorsement wording that would accomplish that end. Very large insureds may be able to obtain even broader notification rights.
“If we cancel or elect not to renew this policy, we will give written notice to ____________ at the following address __________________. We will provide the same notice of cancellation and nonrenewal that is required by this policy to the first Named Insured.”
So if the certificate holder is given the same notice of cancellation and nonrenewal as the first Named Insured, what does that actually mean with standard policies?
Standard commercial insurance policies provide the first Named Insured with 10 days notice of cancellation for nonpayment of premium. If the insurer cancels mid-term for any reason besides non-payment of premium, commercial general liability, automobile and property policies provide 30 days notice of cancellation. Workers compensation policies, however, provide only 10 days notice of mid-term cancellation. If an insurer nonrenews a policy versus cancelling it mid-term, it may nonrenew a commercial automobile or workers compensation policy without any advance notice at all. Property policies may also be nonrenewed without any advance notice to the insured, but if there is a mortgagee or loss payee on the policy, they must be given at least 10 days advance notice. General liability policies may be nonrenewed with just 30 days notice.
State laws in most states change the above requirements, requiring more notice in many situations. For instance, Florida requires that carriers provide the first Named Insured with 45 days notice of cancellation in some circumstances. The provisions of the different state laws are often complicated, differing not only by line of coverage but also by length of time the policy has been in force, the specific reasons for the cancellation or nonrenewal, etc. The specific state requirements can be accessed through the IRMI Insurance Cancellation Guide published by the International Risk Management Institute.
The larger the insured client, the more likely that it will be able to obtain additional concessions from its insurer. If possible, those additional provisions should require:
- Advance notice to the certificate holder even if the insured initiates the cancellation or nonrenewal and
- Minimum cancellation and nonrenewal provisions, regardless of what is provided by the standard policies or various state laws.
Why not just require the old form?
You may ask, “Why doesn’t the certificate holder simply require the insured and its insurance agent to provide the old certificate of insurance form?” What certificate holders and insureds should know is that if an agent does modify a standard certificate or signs a custom one that provides notice of cancellation, it is almost certainly doing so against the explicit direction of the insurance company. So while the certificate holder may have a paper in its hand which states that the insurance company will provide notice of cancellation, the insurer will not stand behind it. If coverage is cancelled, all that the certificate holder has probably gained is the right to sue the agent and its errors and omissions carrier. Since the agent is probably executing the modified certificate with the full knowledge that it is not authorized to do so, coverage under its errors and omissions policy is suspect.