The following is an excerpt of the February 2013 a/e ProNet Guest Essay, Calling a Cease Fire in the Certificate of Insurance Wars. You may download the full PDF version of the newsletter on our website.
In war, events of importance are the result of trivial causes. – Julius Caesar
Battles about certificates of insurance can sour relationships and sow the seeds of discord with clients at the very beginning of a project. And they are becoming more and more common.
Here is a short history of a typical certificate war: The design firm is awarded a new project. Corks pop. The team assembles. Spirits and expectations are high. The first sign of trouble is a call or an email from the project owner’s certificate checker: Your certificate of insurance is not in compliance with the insurance requirements set forth in our contract. Please reissue. The design firm calls its broker, confident that this little paperwork glitch will be simple to fix. But there is bad news. This is not a case of a misspelled name or a typo. The certificate checker is correct: The design firm’s insurance program does not, in fact, comply with the contract requirements.
This is never a good moment, but the design firm rallies and asks how much it will cost to purchase compliant coverage. But then comes an even worse moment, when the broker explains that the contract requirements are impossible to satisfy. The coverage the owner wants is no longer available, is not available from a stable and financially-sound carrier, or, all too often, never was available at all. The design firm tries to make the owner see reason, but sometimes this drama ends with calls and emails to the design firm, its broker, or both, threatening to award the job to another firm if a compliant certificate is not produced today.
Even if the problem is eventually resolved, the bad impression created by this conflict can tarnish a design firm’s relationship with the owner before it ever gets a chance to shine.
How did we get here? How did a one-page summary of insurance coverage that, by its very terms, does not “amend, extend or alter” any insurance policy become the source of so much trouble? And what can design professionals do to avoid certificate rejections and the problems they cause?
A change in certificate language touches off a new round of skirmishes
A recent change in the certificate of insurance form has sparked new conflicts between design professionals and their clients. To understand why, you need to understand not just what certificates of insurance are now, but what they were in the past.
Today, we understand certificates of insurance as mere “snapshots” of coverage—summaries with no ability to affect the underlying policies. But decades ago, they were functional legal documents with the power to modify or amend the underlying insurance policies, much as endorsements would do.
This changed in 1976, when insurers banded together to form ACORD, the Association for Cooperative Operations Research and Development, to develop standard forms for the insurance industry. The certificate of insurance form they created, ACORD 25, stated right on its face that it did not “amend, extend, or alter” the insurance policy. The form included a statement that the insurer would “endeavor to” provide notice of policy cancellation to the certificate holder. It became common for contracts to call for the deletion of the words “endeavor to” in order to state a more absolute requirement. Of course, none of this changed underlying coverage, but it did allow certificate checkers to tick the “notice of cancellation” box on their checklist.
But things changed in September 2010, when a new version of ACORD 25 was issued. ACORD deleted the paragraph saying that the insurer would endeavor to provide notice, and replaced it with a paragraph that made no promises at all:
SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION DATE THEREOF, NOTICE WILL BE DELIVERED IN ACCORDANCE WITH THE POLICY PROVISIONS.
In other words: Read the policy.
And it turned out that certificate checkers everywhere wanted to do just that. They started rejecting certificates and demanding evidence, in the form of endorsements or other policy language, that policies provided for notice of cancellation to certificate holders. In fact, some contracts required notice not just of cancellation, but of “material change” to policies, non-payment of premium, reduction in aggregate limits, and other conditions. The certificate checkers wanted to see those endorsements, too.
For many design professionals, the unhappy surprise was that their policies did not, and in some cases could not comply with contract requirements. This sent brokers scrambling to try to convince insurers to produce compliant endorsements lest their design professional clients lose hard-won projects. Some acquiesced, others didn’t. Some design professionals were forced to change insurance carriers, thus disrupting carefully planned insurance programs. Some brokers resorted to issuing certificates that did not accurately reflect policy coverage; some even provided endorsements that were not part of the insured’s policy.
And the background music to all of this madness was (and still is), “If we don’t get a compliant endorsement, we won’t pay/will throw the design professional off the jobsite/move on to the next compliant bidder…”
 Practice Note: One clue that a contract has been drafted by someone who doesn’t understand insurance is the misspelling of this acronym as “ACCORD” – although this error could, of course, also be caused by careless use of spell check.
 For example, many insurers balked at providing notice of “material change,” stating, with some validity, that they couldn’t know what changes would be “material” to certificate holders. Would the auto liability insurer have to provide notice every time a new auto is added? Would the Commercial General Liability (CGL) insurer have to let the certificate holders know every time an Additional Insured is scheduled? Insurers want no part of these quandaries, and certainly don’t want to issue the torrent of notices that a literal interpretation of “material change” would require.
 It is worth noting that this “snapshot” is especially blurry when it comes to professional liability insurance, which typically has limits that are reduced by sums spent on defense and indemnity for claims made in a particular policy year. A certificate may show that the insured has a $1 million professional liability insurance policy in force – even if on that day, only $500,000 in limits remains available. The certificate reflects the limits shown on the face of the policy, not the remaining policy limits.
This has been an excerpt of the February 2013 Guest Essay, Calling a Ceasefire in the Certificate of Insurance Wars. To continue reading, download the full PDF version by visiting our website.
About the Authors:
Karen Erger is a construction lawyer who has spent most of her career helping engineers and architects identify and manage the risks inherent in professional practice. Before joining Lockton as Vice President – Director of Practice Risk Management, Ms. Erger practiced law in Chicago, concentrating her practice in A/E professional liability defense. She also served as a claim supervisor for a leading A/E professional liability insurer and a broker specializing in A/E risk management and insurance. She graduated Phi Beta Kappa from the University of Chicago and received her law degree from the University of Chicago Law School.
Reprinted with the permission of the American Council of Engineering Companies (ACEC).
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