Those crazy Certificates of Insurance

Where would you think the “improper execution of certificates” ranks among the leading causes of E&O claims? After all, it is just a piece of paper that clearly states the certificate is issued as a matter of information only and confers no rights upon the certificate holder. It is also stated that the certificate does not affirmatively amend, extend or alter the coverage afforded by the policies listed.

In reality, the “improper execution of certificates” is generating close to 10% of all E&O claims. Why is this number so high? It certainly appears that certificate holders are relying upon the certificate as a factual representation of the coverage in effect. Imagine that!

I recently became aware of an E&O claim where the agency provided the certificate holder with a certificate that listed the BOP, auto and umbrella policies. The problem was that the coverages had never been placed.

Was this just a simple, yet very costly, mistake? Probably and it could have been avoided so easily.

One way to significantly minimize the potential for the above scenario to occur is to have the certificate generated from the Agency Management System.  This practice will ensure that the certificate is consistent with the policy.

Other issues involve agencies issuing certificates showing business placed thru their E&S wholesalers. The problem with this is that technically, the wholesaler is the agent of record, not the retailer. As a result, certificates issued by retailers may not be considered valid.

Several years ago, I spoke at a conference on the latest issues involving E&O. At the conclusion, an agency owner, in front of around 250 people, stated that in his agency, you put on the certificate whatever is necessary to keep the customer happy. Needless to say, this is not sound advice at all. The certificate should only reflect the actual coverage provided and should not include any statement / coverage that is not consistent with the policy. This could present a legal risk, including violation of insurance regulatory requirements.

The issuance of certificates is serious business and failure to follow some basis “rules” could cause some real E&O headaches. Those crazy certificates – much more of an E&O issue than many realize.

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