Illusion of Insurance Coverage
Many contracts or leases require one party to get insurance protection for the other party or landlord. Typically, they simply pass along the request for the insurance coverage to their insurance agent or broker and assume that their insurance will be updated to reflect the addition. To “prove” compliance with the contract requiring additional insurance coverage, the parties will often rely upon a “Certificate of Insurance.”
Unfortunately, when a personal injury occurs or property is damaged they realize that the Certificate of Insurance the parties had been relying upon actually states: “This certificate is issued as a matter of information only and confers no rights upon the certificate holder.” The parties may learn the insurance policy does not provide coverage because the insurer never completed the proper paper work to add the coverage that was required by “Endorsement.”
One of the biggest mistakes made when a contract or lease includes a provision requiring specific insurance coverage (i.e. naming the company as an additional insured or a loss payee) is reliance a Certificate of Insurance as evidence of coverage.
Certificates of Insurance:
- Do not confer rights upon the certificate holder;
- Do not affirmatively or negatively amend, extend, or alter the coverage afforded by the insurance policies; and
- Do not constitute a contract between the insurer and certificate holder.
In no uncertain terms, a Certificate of Insurance does not actually add any party listed therein to the policy in any way.
A party is ONLY covered under a policy if an insurer issues an endorsement that adds that party as an “Additional Insured” or “Loss Payee.” An insurance policy is comprised of three parts - declarations, forms, and endorsements. The declarations list the forms and endorsements that comprise the policy. Any coverage form or endorsement not listed in the declarations is not part of the policy.
A specific Additional Insured endorsement is used to add coverage for specific Additional Insured’s by name. The coverage afforded to the specially-named Additional Insured depends upon the language of the endorsement itself. Review the endorsement carefully.
The best way to prevent having little or no insurance coverage, despite any contractual entitlement to coverage, is to ensure that an attorney reviews contract documents and pertinent parts of the insurance policy to ensure that contractually required coverage is in place.
To Protect Yourself:
- Never accept a Certificate of Insurance as proof that parties were properly added to the pertinent insurance policy;
- Request the endorsement and declarations page of the insurance policy.
- Ask an attorney to analyze the insurance required by the contract or lease and all pertinent insurance policy provisions to confirm compliance with any contractual insurance requirements.
About the Author: Nathan D. Meyer is a Partner and Micalann C. Pepe is an attorney at the Phoenix law firm of Jaburg Wilk. They advise and represent clients in coverage, bad faith, and contribution and liability matters.