A few months back, I got a call from the general counsel of a construction company. His employer was the general contractor in a construction defect case, and he needed some advice with respect to the applicable “additional insured” coverage. “Now, you do know about this stuff, right?” he asked. “I don’t want to have to educate you.”
I thought that was sort of funny, given the amount of misunderstanding that takes place in the business community generally with respect to additional insured coverage. I previously posted here, for example, about how a small difference in a single word in the policy can change the meaning of additional insured coverage entirely. Now let’s briefly look at another particular problem that can arise.
A “certificate of insurance,” without more, is an interesting source of information, but is really evidence of nothing. (Certificates of insurance are printed on ACORD forms – ACORD being an insurance industry trade organization – and, in my view “ACORD” stands for “A Crappy Option to a Real Document.”) A certificate of insurance is a form usually prepared by the named insured’s broker – not the carrier – and so is not binding upon the carrier. The certificate is basically a representation by the broker that, at a point in time, a certain type of coverage with certain limits existed. But a policy could be canceled after the COI is issued, for example, or the available limits could be impacted by other claims, and you might never know. Without an actual copy of the policy, and an obligation of the carrier to notify you of cancellation or impacted limits, the COI is nothing more than a piece of paper. More importantly, without reviewing the insurance policy itself, you may not have the coverage you think you have.
Let’s review an Illinois case from a few years back, United Stationers Supply Co v. Zurich American Ins. Co., 896 N.E.2d 425 (Ill. App. 2008), to give you an idea of what can happen when people get sloppy with insurance documents. United hired Taylor to repair a roof at United’s commercial building. As part of the contractual arrangement, Taylor agreed to name United as an “additional insured” under its insurance program, and duly provided United with a certificate of insurance showing United as an additional insured on Taylor’s general liability insurance policy.
A United employee, Dirck, fell from a ladder that had been left on-site by Taylor, and sued Taylor; Taylor then sought contribution from United.
Unfortunately for United (or for the plantiff’s lawyer), United actually had not been named as an additional insured on Taylor’s general liability policy, despite what the certificate of insurance said. In fact, in the contract between United and Taylor, Taylor was not specifically required to name United as an additional insured on the general liability coverage. The agreement only required Taylor to maintain proper workers’ compensation insurance, employers’ liability insurance, contractual liability insurance, auto liability insurance, and a hazardous materials liability policy. While the contract required Taylor to name United “as an additional insured on a primary and non-contributory basis,” the contract did not specify the type of insurance as to which United was required to be named as an additional insured.
United argued that, by its terms, the certificate of insurance conveyed additional insured coverage, but the Court disagreed, noting that the certificate specifically stated that it was “issued as a matter of information only and confers no rights upon the certificate holder. This certificate does not amend, extend or alter the coverage afforded by the policies [specified in the certificate].” The Court held: “There is no record evidence of an oral agreement or internal Zurich memoranda that showed United Stationers specifically was supposed to be named as an additional insured on the CGL policy. The record shows Zurich consistently has denied that United Stationers is an additional insured. The written agreement between United Stationers and D. C Taylor does not include specific language requiring United Stationers to be named as an additional insured under the CGL policy…Where the certificate refers to the policy and expressly disclaims any coverage other than that contained in the policy itself, the policy should govern the extent and terms of the coverage.”
As you can see, there were a number of breakdowns in this case, not the least of which was a failure to make sure the contract included a provision requiring that United be named an additional insured on Taylor’s CGL policy. Here are a few takeaways:
1. Always insist on obtaining a copy of the actual policy and the endorsement listing the names of the additional insureds.
2. Confirm the type of coverage provided. Does the coverage match the contract?
3. Always negotiate notice provisions with the other contracting party. You should be notified immediately in the event of a cancellation or modification of coverage, or any impairment of the policy limits.
Finally, keep in mind that even if your company is an additional insured, your company’s employees and officers probably aren’t.