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E&O Risk Management: Meeting the Challenge of Change

E&O Risk Management: Meeting the Challenge of Change. Certificates of Insurance. INTRODUCTION.

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E&O Risk Management: Meeting the Challenge of Change

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  1. E&O Risk Management: Meeting the Challenge of Change Certificates of Insurance

  2. INTRODUCTION While there are a number of issues that can create E&O claims, one of the most common errors made involves agencies using the certificate of insurance as a way to add additional insureds without formally contacting the carrier to add them by endorsement

  3. CERTIFICATE What is a certificate of insurance? • Informational snapshot only • It is for general informational purposes only and confers no rights • It is subject to all of the terms and conditions of the various policies shown

  4. CERTIFICATE What isn’t a certificate of insurance? It does not: • extend any contractual rights to the holder not provided by the policy • represent compliance with any contracts entered into by the insured with others • amend, extend or alter coverages or terms afforded by the policy

  5. E&O EXPOSURE Why the increase in E&O exposure: • Increased demand from third parties for certificates and additional insured status • Increased complexity of certificate and related documentation (agent affidavits, compliance checklists, etc.) requests • Increased frequency leads to routine which leads to complacency in vigilantly reviewing requests

  6. E&O EXPOSURE Why the increase in E&O exposure: • Lack of agency staff qualifications for more complex requests, particularly requests for specific verbiage on certificates • Increased pressure from insureds and third parties to issue misrepresentative certificates • Improved litigation success focused on claims of fraud and detrimental reliance

  7. Certificates of InsuranceShould You Be Concerned? 2009 E&O Data • 42% AI missing/wrong • 24% misrepresentation • 17% nonexistent coverages Corroboration • City of Atlanta survey • Agency consultant review • Florida agency study • AI endorsement not added$180,000 • Blanket AI endorsement$445,000 • 4,000 bogus certificates$10,290,000 • $150 MILLION claim? • Average COI claim is $50,000

  8. Certificates of InsuranceAlways Use ACORD Forms ACORD’s licensing agreement requires new form editions to be used no later than one year following publication This may require upgrading agency management systems Never issue “blank” certificates that do not show certificate holders

  9. Certificates of InsuranceRequests for Specific Language • Contractual insurance requirements • Description of Operations verbiage • Review ACORD FIG explanation • Do not “quote wording from a contract” • Agent affidavits or opinion letters • Compliance checklists • Do not paraphrase or summarize policy terms

  10. Certificates of InsuranceCancellation, et al. COIs often address CGL, auto, WC, and other policies that might have varied termination and change conditions ACORD forms now refer the holder to the policy forms for cancellation, nonrenewal and material change terms

  11. Certificates of InsuranceOnline Certificate Systems • Often marketed to third parties based on funding by insurance agents who pay entry and access fees • Agent may be forced to use system or lose customer • Agency has no control over entered information • No permanent copy for agency management system • May result in policy misrepresentation in violation of the law • May violate agency/company agreement • DOO field could be entered by the insured on one system • AI information could be added by certificate holder on another system

  12. Certificates of InsuranceReviewing Contracts Pros and cons E&O claim example Onerous request Sample disclaimer…see manual Page 10 Where did you go to law school?

  13. Certificates of InsuranceContract vs. Policy Limits • Insured has a $5M policy limit and the contract only requires $1M, so he only wants the certificate to show $1M so he doesn’t reveal his full limit • ACORD FIG: “Enter limits corresponding to those found on the policy declarations page.” • It is likely illegal to misrepresent policy provisions • Some AI endorsements only pay the lesser of the two, so it would be OK to show that on the COI

  14. Certificates of InsuranceSending COIs to Insurers • Send them. Next question? • Marlin v. Wetzel (WV Sup. Ct., 2002) • Erie v. NGM (NY trial court, 2009 • “Our internal procedures and our legal counsel require that a copy of all certificates be sent to our carriers.” • Some AI endorsements are triggered by the receipt of the certificate by the carrier.

  15. Certificates of InsuranceAdditional Insured Issues MANY proprietary AI endorsements are significantly inferior to ISO forms (ongoing only, vicarious only, excess coverage, etc.) “Primary and noncontributory” (new CG 20 01 04 13) CA 20 48 is not a true AI endorsement

  16. Certificates of InsuranceFinal Comments • Specific Steps to Decrease Exposure • Solutions for Agencies • Education • Procedures • Job restructuring • “Service, not servitude”

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