What Is Allowed On A Certificate of Insurance?

During the past year, those of us who collect and review certificates of insurance (COIs) have seen a lot of information/misinformation in the insurance marketplace pertaining to the issuance and collection of certificates. We realize that many of us are exposed to information from insurance industry groups, insurers, insurance agents, state insurance departments, and so on. When combined with a heavy workload, it’s easy to see how misreading a bulletin or the quick scan of a new state regulation might cause anyone issuing COIs to refuse changing a COI in response to a request or requirement. How often have you heard “That is not allowed?”

While information is meant to help, we believe the best method for addressing the “That is not allowed” argument is by using current State Insurance Department communication(s) on the topic of COIs. Many of these communications focus on agent reminders, recent legislative changes, and updates concerning the use, content, purpose, and issuance of COIs.

This article will focus on a State Insurance Department bulletin and two recent legislative changes aimed at COIs. We believe this will help you determine more accurately what is allowed on a COI, clear up misconceptions, and help provide guidance to obtain the correct information.

The State of Texas amended its insurance code effective January 1, 2012, by specifically addressing property and casualty COIs. Here are some of the areas the amended code deals with:

DEFINITIONS. “Certificate of insurance” means a document, instrument, or record, including an electronic record, no matter how titled or described, that is executed by an insurer or agent and issued to a third person not a party to the subject insurance contract, as a statement or summary of property or casualty insurance coverage. The term does not include an insurance binder or policy form.

APPLICABILITY. This chapter applies to a certificate holder, policyholder, insurer, or agent with regard to a certificate of insurance issued on property or casualty operations or a risk located in this state, regardless of where the certificate holder, policyholder, insurer, or agent is located.

PROHIBITED ACTS AND PRACTICES. (a) A property or casualty insurer or agent may not issue a certificate of insurance or any other type of document purporting to be a certificate of insurance if the certificate or document alters, amends, or extends the coverage or terms and conditions provided by the insurance policy referenced on the certificate or document. (b) A certificate of insurance or any other type of document may not convey a contractual right to a certificate holder.

RIGHTS CONFERRED. A certificate of insurance does not confer to a certificate holder new or additional rights beyond what the referenced policy or any executed endorsement of insurance provides.

CIVIL PENALTY; INJUNCTION. (a) A person, including an insurer or agent, who willfully violates this chapter is subject to a civil penalty of not more than $1,000 for each violation.

New Hampshire recently enacted a new statute effective January 1, 2012 to address the content, purpose, issuance and use of COIs in part as follows:

(4) No person shall prepare or issue a certificate of insurance that purports to affirmatively or negatively alter, amend, or extend the coverage provided by any policy of insurance referenced in the certificate.

(5) The requirements of this section shall apply to certificates of insurance issued as evidence of insurance policies and coverage on property, operations, or any risk located in this state, regardless of where the certificate holder, policyholder, insurer, or insurance producer is located.

(6) No certificate of insurance shall contain references to contracts, including construction or service contracts, other than the referenced contract of insurance, unless such reference is in relation to coverage or other requirements of the insurance contract.

(7) A certificate holder shall only have a contractual right to notice of cancellation, nonrenewal, or any similar notice concerning a policy of insurance if the person is identified and designated within the policy or any endorsement to that policy as an additional insured and that policy or endorsement requires notice to be provided.

New Jersey Bulletin #11-04 from the Commissioner regarding COIs states:

The purpose of this Bulletin is to remind producers that certificates of insurance should be used only to provide evidence of insurance in lieu of a copy of the actual policy, and cannot be used to amend, expand or alter its terms.

Department continues to urge all insurers to review their oversight procedures regarding certificates of insurance in order to avoid misrepresentations of the terms and conditions of their policies, and to remind their producers about the consequences of providing improper certificates.

All insurers are encouraged to provide copies of this Bulletin to all of their appointed agents and employee producers, if any.

Copies of these bulletins and insurance codes can be found here on our blog in the previous post.