A Georgia roofing contractor got stuck with an additional audit premium of $2.6 million because a subcontractor had allowed two Workers’ Compensation insurance policies to cancel. They sued the insurance agency that had issued certificates of insurance showing that the sub had coverage.
In December 2021, the agency’s owner applied for coverage for the sub through the state Workers’ Comp residual market. The application was assigned to a participating insurance carrier which issued a one-year policy effective the same day. A week later, the agency issued a certificate listing the carrier and a binder number as evidence of Workers’ Comp coverage. It named the roofing contractor as the certificate holder and contained the disclaimer language typically found on an ACORD evidence of insurance form.
The next month and for reasons the court opinion did not explain, the carrier was attempting to conduct a premium audit of the sub’s operations. It may have been for the purpose of ensuring that the underwriter had assigned the correct rating classification. The carrier was having difficulty getting the employer’s cooperation, and they sent a letter threatening cancellation.
Although the carrier finally completed the audit in the spring, they canceled the policy anyway in May 2022. They also issued a premium refund check that the employer cashed. The employer apparently made no effort to replace the policy.
In September the roofing contractor asked its sub for an updated certificate. The sub sent them the same certificate they had provided in December, even though that policy had been canceled and they had cashed the refund check.
In October a producer at the agency sent a new application to the Workers’ Comp residual market, but this one named the subcontractor’s owner as the insured. It was assigned to a different carrier and a new one-year policy was issued effective October 18, 2022. In January 2023 the producer issued another certificate naming the roofing contractor as certificate holder and listing the new policy, its number, and policy period. It again contained the standard disclaimer language.
However, the new carrier had canceled its policy five days before, again because the insured was not cooperating with the premium audit procedures. The auditor got no help from the agency owner or the producer.
In April 2023 the roofing contractor’s Workers’ Comp carrier performed its own audit and discovered that the contractor’s subs had gaps in their coverage. In July, the contractor asked the agency directly for updated certificates. The agency owner insisted that the sub had had continuous coverage and there must have been a mistake. However, they subsequently issued certificates showing the actual dates of coverage under both policies.
The contractor’s carrier billed them an additional premium of $2,679,417 for coverage of an uninsured subcontractor. The contractor sued the agency, its owner, and the producer on multiple claims of negligence and negligent misrepresentation of facts. On May 29, 2025, the judge ruled in favor of the agency and its owner based on the law.
He found no evidence that the producer, who was an independent contractor, had knowingly issued an inaccurate certificate of insurance in January 2023 and therefore the agency was not liable for her error. He also noted that the December 2021 certificate was accurate on the date it was issued, and it was the sub, not the agency, who re-submitted it the following September despite knowing it was inaccurate. Finally, he ruled that the certificates were not “promises,” as state law defined that term, and the contractor was not justified in relying solely on them.
This case illustrates two key points:
- Agencies should have written procedures for issuing certificates of insurance that involve more than one person. This will help prevent errors.
- Clients who repeatedly cancel for non-payment of premium or non-cooperation with audits are bad news. Agencies should part ways with these clients to the extent state law permits.
Agencies with strong controls over certificate issuing processes and who are selective about the clients they take on will avoid this kind of trouble.
