PNN_1511In what attorney Brian Stewart calls a “disturbing trend,” more and more project owners design professionals to procure separate questionnaires from their insurance brokers. These “broker-verification questionnaires” are meant to re-state or re-affirm the limits, exclusions, etc. of the relevant insurance policies to the project.  If you’re an architect or engineer who has met push-back from your broker on this issue, our November 2015 issue of ProNetwork News explains why:

I:  The Problem with Broker Verifications

The use of broker-verification questionnaires has been a growing trend seen most commonly in the context of construction insurance… Historically, a broker has satisfied this requirement through the production of a certificate of insurance or, if necessary, a copy of the policies themselves which demonstrate that the insured had the applicable coverage.  However, a number of project owners have recently been refusing to accept certificates alone and are requiring brokers to complete a questionnaire and verification, with the understanding that a failure to complete the questionnaire will cost the broker’s client the job.

The increasingly frequent use of such broker-verification questionnaires raises a number of legal issues for the broker.  The first issue deals with the broker’s authority to interpret the underlying policy between the insurer and the insured and whether a broker has the authority to confirm in writing whether a specific policy meets the requirements, not of the contract between the Owner and the insured but rather the requirements contained in the broker-verification questionnaires.  The second legal issue deals with the effect of a conflict between the underlying policy and the language of the questionnaire.  Specifically, what is the legal consequence when a broker completes a questionnaire that potentially contains conflicting language from the actual policy?  Finally, this opinion will analyze what risks and liabilities a broker is exposed to when completing  a questionnaire that contains language that is in conflict with  or amends, modifies, expands, etc. the underlying policy.

II:  Principles of Contract

Insurance is a matter of contract governed by the rules of contract. Unlike the ordinary commercial contract where the parties seek to ensure a commercial advantage for themselves, an insurance contract seeks to obtain some measure of financial security and protection against calamity for the insured.

Being a voluntary contract, as long as the terms and conditions made therefor are not unreasonable or in violation of legal rules and requirements, the parties may make it on such terms, and incorporate such provisions and conditions as they would see fit to adopt.  The rights and obligations of parties to an insurance contract are determined by the language of the contact and the insurance policy is the law between the parties unless the contractual provisions are contrary to public opinion or law.

III:  Role of the Broker

An insurance broker provides a professional service for the insured, its client and goes to the insurance market to determine what policy or policies best fit the needs of its clients.

Relevant distinctions exist between an insurance agent and an insurance broker.  Whereas an agent generally represents a particular insurance company, an insurance broker generally represents only the insured. Consequently, an insurance broker owes a duty to the insured and not the insurer. Continue reading “The Down-Low on Broker-Verification Questionnaires”

certwars_geThe 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? Continue reading “Calling a Ceasefire in the Certificate of Insurance Wars”