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Certificates of Insurance: Am I Covered?

Christa L. Folkers

Frequently in real estate transactions a party must verify the existence of insurance.  Whether it is a borrower providing verification of property insurance to a lender or a tenant providing verification of liability insurance to a landlord, the document often used for verification is a certificate of insurance.  

A certificate of insurance is a standard form developed by the Association for Cooperative Operations Research and Development, commonly known by its acronym, ACORD.  Since 1970, when ACORD was founded as a cooperative venture between agencies and carriers, the organization has developed hundreds of standardized applications and other forms designed to bring consistency to the business of insurance.  The ACORD certificates of insurance provide to lenders, project owners, landlords, and vendors a summary of how much insurance a potential borrower, contractor, tenant, or buyer has.  

Two commonly used ACORD certificates are the ACORD 24, Certificate of Property Insurance, and the ACORD 25, Certificate of Liability Insurance.  Both of these ACORD certificates include a disclaimer in bold text at the top of the certificate stating that the “certificate is issued as a matter of information only and confers no rights upon the certificate holder.”  The disclaimer also states that the “certificate does not amend, extend or alter the coverage afforded by” the policies listed on the certificate.  Furthermore, the insurer has no obligation to mail a notice of cancellation to the certificate holder, but instead is required to “endeavor” to mail a notice of cancellation.

While it can be useful to have a summary of a party’s insurance coverage in a familiar form, it is important to know that the certificate itself does not provide coverage.  Issuance of a certificate of insurance does not make the certificate holder an insured for property coverage or an additional insured for liability coverage.  It serves rather as notice to the certificate holder that the party it is dealing with has insurance.  The ACORD instructions accompanying a certificate of insurance specifically state that “if the certificate holder is an additional insured, the policy(ies) must be endorsed.” Therefore, to add the certificate holder as an insured for property coverage or as an additional insured for liability coverage, the policy must be amended or endorsed by the carrier. 

The above certificates of insurance can be distinguished from the 2006 version of the ACORD 28, Evidence of Commercial Property Insurance, and the ACORD 75, Insurance Binder.  The ACORD 28 provides more significant information on the property insurance coverage as compared to the ACORD 24, but it includes the same disclaimers.  Therefore, the evidence is for information purposes only, confers no rights upon the evidence holder, and does not amend, extend, or alter the coverage.  Furthermore, the insurer has no obligation to mail a notice of cancellation to the evidence holder. The ACORD 75 is an insurance binder issued as temporary evidence of insurance until the actual policy is issued and does not include the disclaimers present in the ACORD 24, ACORD 25, and ACORD 28.  Unlike the ACORD 24, ACORD 25, and ACORD 28, the ACORD 75 requires the insurer to mail a notice of cancellation to the binder holder.

So what if a certificate of insurance erroneously states that insurance is in effect?  Can you rely on the certificate?  Certificates of insurance do not constitute enforceable evidence of insurance coverage that is binding on the insurance underwriter and cannot be relied on for adding an insured for property coverage or adding an additional insured for liability coverage.  The holding in a New York case illustrates the danger of relying on certificates of insurance. Benjamin Shapiro Realty Co., LLC v. Kemper National Insurance Companies, 303 A.D.2d 245 (N.Y. 2003).  In this case, the tenant’s insurance broker issued a certificate of insurance to the landlord naming the landlord as an additional insured under the tenant’s liability insurance policy.  The certificate of insurance included a disclaimer that it was “for information only” and did not amend or alter the actual policy of insurance.  When a claim occurred, the landlord discovered that it was not an additional insured under the tenant’s policy, which was contrary to what the certificate of insurance indicated.  The landlord brought an action against the tenant’s insurance broker to recover damages for negligent misrepresentation, based on the information in the certificate of insurance.  The Court dismissed the action and held that because of the disclaimer, the certificate of insurance could not be used as a predicate for a claim of negligent misrepresentation.  

While a certificate of insurance may be adequate in certain transactions involving smaller assets, there are times when you need to obtain enforceable evidence of insurance.  As illustrated in the New York case, the disclaimers included in most certificates of insurance render them worthless in terms of enforcing the coverage they purport to evidence.  A party desiring enforceable evidence of insurance coverage should not rely on a certificate of insurance, but instead should insist on a complete policy and all endorsements. The complete policy and all endorsements should be carefully reviewed by an individual who understands insurance policies.  If the policy and endorsements have not yet been issued, an ACORD 75 will serve as temporary evidence of insurance, subject to the terms, conditions, and limitations of the policy currently in use by the carrier.

In your next real estate transaction, keep in mind the limitations of a certificate of insurance.  If you are on the receiving end of a certificate of insurance, pay special attention to the disclaimers.  To be certain that the party you are dealing with has insurance coverage and that you are covered if a claim arises, insist on a complete copy of the policy, including all endorsements.  If you are uncertain about any of the terms of the policy, consult with an attorney or insurance professional.  Do not wait until a claim is filed to find out that you or your property is not covered.  

If you would like to know about this topic, please contact Christa Folkers at cfolkers@williamsparker.com or (941) 552-5554.
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