It’s conventional wisdom: You’re named as an additional insured on a third-party policy. The policy lapses. You get a cancellation notice and follow up to ensure compliance. Right? Don’t be so sure.
In a perfect system, notice of a policy cancellation would come in before (or shortly after) the actual cancellation date. You’d have sufficient time to contact the named insured to confirm that a new policy is in place with another agent. If it’s not, you’d have the opportunity to limit your third party’s access to the site, or you could withhold payment until they resolve the insurance issue. You’d maintain your compliance and mitigate potential risk to your company.
In reality, cancellation notices are informative at best – non-existent at worst. Insurance carriers aren’t legally obligated to notify additional insureds of primary coverage lapses. That means, even if your third-party contract requires the vendor/tenant/subcontractor to notify you when coverage lapses or expires, you might not get the message if the third party doesn’t hold up its end of the deal.
So, what does that mean for your company? According to Robert M. Horkovich and Pamela Hans in a recent RIMS blog post, if you don’t receive a required cancellation notice,
“…your company may be in breach of its…own insurance, other contract requirements, or bid requirements…[and] your company may have to fund defense and other payment obligations that would otherwise have been insured under the insurance policy.”
What can you do to minimize risk to your company and help maintain its financial security? Be proactive about soliciting cancellation notices rather than waiting for correspondence that may never come.
Keeping track of cancellations can be tedious and time consuming without the right tools. If you need help confirming and managing cancellations, myCOI is here for you. With Quarterly Tracking, we’ll send a preemptive email to third parties’ agents every 90 days to keep you informed of any changes or lapses in coverage. Now, you can stay on top of compliance with minimal effort.
Want to know more about Quarterly Tracking? Check out last month’s blog post.
When it comes to cancellation notices, don’t assume that no news is good news. Use myCOI to protect your business from unnecessary claims by ensuring compliance from your third parties. Your owners, creditors, customers – and your bottom line – will thank you.