A certificate of insurance is a documented proof of a person or a business covered by an insurance policy. Such proof is needed to vet that you or your business is insured and therefore partnering with you doesn’t involve any risk. This sounds quite straightforward for insurers who just need to follow the standard template issued by The Association for Cooperative Operations Research and Development (ACORD). However, in reality, issuing a COI is not as simple for an insurance carrier as it apparently sounds. The tussle between T Mobile USA and Selective Insurance Corporation of America is one such example.
T Mobile USA is the parent company of T-Mobile NE. The latter inked a contract with a third-party contractor to build a rooftop cell phone tower in an area in New York city. It was a mandate for the contractor to be covered by a Commercial General Liability (CGL) insurance policy. They obtained the policy from Selective and provided certificates for the same to T Mobile NE who were added as the additional insured entity. However, T Mobile USA wasn’t a party to the contract and ideally was not supposed to be additionally insured. But in keeping with Selective’s CGL policy terms, the insurance agent continued to issue COIs to T-Mobile USA Inc and its affiliates for a period of seven years.
The problem started when the owner of the rooftop sued T Mobile USA and the contractor for construction-inflicted damages. Selective refused to be bound by its agent’s representation in the COI and chose to comply with their original policy. The Washington trial court ruled out selective’s argument about disclaimers about additional insureds as incoherent language which should not be preferred over an agent’s representation in the COI.
What do Insurance Carriers Derive from this Incident?
The ruling significantly reduces an agent’s authority over COI issuance, makes it mandatory to comply with COI-related gold standard directives, and above all, mandates carriers to ensure specificity in language to make COIs more comprehensive and less confusing.
Did you know that COI comprises a significant portion of about 25 errors and omissions claims? An alarming 21% of those cases involves holders misrepresenting or falsely claiming to have coverage that never exist.
Will These Lessons be Enough to Avoid a Misrepresented COI?
There can’t be a one-word answer to this question. While taking a cue from this lesson will guarantee some improvement, it however does not ensure a complete insulation from misrepresented COIs. For instance, an insurance agent entered into a partnership with the Federal government on the basis of a COI issued by a vendor but failed to renew it which led to the withdrawal of the cover. Soon after, the vendor caused some damages to government property and was sued by the government for failing to send notification on the cancellation of the vendor’s insurance coverage. This incident brought to light the fact that apart from featuring the types of coverage, the responsibility befalls on the insurance carrier to include a notice of cancellation. Incidents like this point at the growing necessity to make their COI services more improved and comprehensive.
Did you know that the Independent Insurance Agents and Brokers of America (IIABA) played a key role in passing COI-related laws across 45 states? These laws declared it illegal to issue misrepresented certificate of insurance and to pressurize an insurance agent to furnish misrepresented COIs.
How to Make COI Services More Comprehensive?
There is no doubting the fact that handling COIs is a time-consuming and complex task that is highly prone to error and omission (E&O) concerns. Often insurance agents find it difficult to understand whether to cater to their clients’ special requests to modify the COI document content or to stick to their carrier’s requirements. All these complexities make it imperative to seek help from external experts who can drive improvement in COI services and make it more comprehensive.
Improved COI processing– Expert third party vendors have skilled resources to take care of the end-to-end process of issuing, receiving, and processing proof of insurance on an accelerated and accurate fashion within affordable rates. They ensure that the COIs issued on ACORD, ISO forms, among others are vetted by the partnering insurance carrier.
Tracking of COIs– Companies can have business liaison with multiple vendors. This makes it necessary to build a robust system for continual tracking of COIs of each vendor. The system involves collection and storage of documents in a location that can be easily accessed by the partnering company. This is essential for a regular check to determine the insurance status of vendors. Third party COI services providers aid companies to set up collection process attuned to their business setup and create guidelines for continuous review.
Quick update in case of inconsistencies– Upon detecting any inconsistency on the COI document that do not befit the partnering company’s requirements, COI service providers are quick to reach out to the company or the insurance carrier. This is done to urge them to update their policies to befit the required terms.
Did you know that upon receiving a cancellation notice of a driver’s auto insurance policy, the North Carolina Division of Motor Vehicles issues a FS 5-7 Notice requesting policy information? The driver is obligated to return the notice within 10 days which must include a re-certified COI and a penalty amount, as applicable.
Renewal Requests and Compliance Reporting– Experienced COI services providers delegate experts who leverage their insurance certificate management database to track all insurance policy renewal requests. They also keep a track of all the individual requests and furnish extensive compliance reports for the same.
Minimizing E&O errors– The reliance of a carrier on a vendor to state every possible insurance information on COIs increases chances of E&O errors in the document. COI service providers have the necessary industry experience and foresight to make those errors avoidable to a large extent. To do so, they ensure checking the following:
- Proper verification of names and their spellings in the endorsements.
- While reviewing additional insured endorsements, they ensure that the insured status of vendors is active till the completion of partnership.
- Ensure that the endorsements bear relation to the vendor’s current policy.
- Proper scrutiny of blanket endorsements and ensure the avoidance of limiting language that can deny the vendor from an insurance coverage.
Outsourcing vendors have domain-specific knowledge to execute and process COIs. They stay abreast of all the regulatory specificities and are always on their toes to issue error free COIs. This helps insurance carriers keep a tab on COI issuance and stay in line with regulatory and legal requirements.
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This article is brought to you by Insurance Back Office Pro. We have over 10 years of experience in assessing COI policy terms to protect carriers and agencies against compliance violations.