What would an audit of your certificates of insurance reveal?

December 9, 2015

You all know this, a certificate of insurance is only a snapshot of insurance coverage at that date and time. In order to minimize confusion of a COI to actual coverage, agents know to use the ACORD forms, never alter the language of the COI and not to represent coverages on the certificate that do not exist on the policies.

How can an agent make sure they are not inadvertently making a mistake? The keys are to be sure that first, the COI only indicates the coverages that are actually in effect at the moment the COI is issued, and second if the coverage is not in effect at that moment that nothing indicates that it is.

It seems simple. But one coverage area that is commonly requested, and many mistakes are found is when additional insured endorsements come into play.

In a recent IRMI [International Risk Management Institute] Expert Commentary, David Dybdahl disclosed that when his risk management firm audited hundreds of COIs and their underlying policies over a period of years, they found that more than 90% had at least one material misrepresentation between the liability coverage shown on the COI and that provided by the actual underlying policy.

A major percentage of Dybdahls’s 90% was additional insured disconnects. His firm repeatedly found two key oversights relating to endorsements such as ISOs CG 20 33, CG 20 10 and CG 20 37 that led to gaps in additional insured (AI) status between what the COI stated and the reality:

Improper usage—and evident misinterpretation—of “blanket” additional insured endorsements such as the ISO CG 20 33. “Blanket” implies that every party asking to be an additional insured is covered. But automatic status as an AI only applies to those “for whom you are performing operations when you and such person or organization have agreed in writing in a contract or agreement that such person or organization be added as an additional insured to your policy.” Although that may cover quite a few potential AIs, it also leaves a lot of commonly requested AIs off the list. For example, consider an agreement in which your insured has a written contract with Company B, wherein B also requests AI status for its subs, vendors, affiliates, local municipalities, and so on. Because your insured only has a written contract with Company B, only Company B is automatically added as an AI—none of the rest. Company B is only an AI while your insured is actively performing operations for B. When those operations are completed or suspended—or perhaps, have not yet begun—the ISO CG 20 33 provides no AI status to B either.

Improper usage of scheduled AI endorsements. For situations in which it’s preferable to nail down specific AI status for any person or organization—or, in the case of completed operations, exposures not covered by the CG 20 33—ISO provides other endorsements. Some affirm AI status to entities (such as the CG 2010); others may address specific exposures (such as the CG 20 37 for completed operations). Although these endorsements have their own requirements and conditions for coverage to apply, Dybdahl’s firm found an abundance of errors resulting not from coverage technicalities but rather from simple failure to properly execute the endorsements. For example, on far too many policies, the CG 2010 and CG 2037 were properly added, but the schedules left blank! How could any astute agent—or underwriter—overlook the clear and simple declarative sentence that begins the insuring clause of both the CG 2010 and CG 2037: “Section II—Who Is An Insured is amended to include as an additional insured the person(s) or organization(s) shown in the Schedule…”.

Take the time when issuing and requesting certificates of insurance and the applicable endorsements to confirm you have executed and reviewed them appropriately.

Contact myCOI today to find out how we can help.

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