An insurance broker fought off a lawsuit and an appeal after a confusing series of events led to a seriously injured construction worker and an employer without required coverage.
The Workers’ Compensation insurance for a New York City construction company appears to have non-renewed on July 10, 2013. The court opinions do not say why. It was alleged that they contracted with an insurance agency “on or about October 31, 2013” to obtain coverage.
However, the construction company later argued that the agency had falsely told them that coverage had been obtained effective July 10. As evidence, the company produced a certificate of liability insurance dated July 23, 2013, showing coverage effective July 10. The date they received the certificate was not specified.
On August 14, one of the company’s employees was seriously injured on a jobsite. According to the company, it was only then that they learned they had no Workers’ Compensation insurance. The court opinions did not describe the injuries or mention the damages sought. However, in New York an injured worker may sue a third party for damages only when a “grave injury,” such as death, loss of use of a limb, or paralysis has been suffered.
That fall, the injured worker sued the property owner and general contractor. Months later, he added his employer to the lawsuit because he had not received Workers’ Compensation benefits. A year after that, the construction company sued the agency. To support their claims, they relied on the certificate of insurance and a series of emails between the insurance producer and an employee of the company.
The agency responded that the certificate in question was a sample that “was not in any way a representation that such insurance was procured, or would be procured” for the company.
The company asked the judge to rule in its favor based on the law, claiming that there was no dispute that the two parties had a contract, that the company paid the agency premiums, and the agency “provided (them) with a fraudulent certificate of insurance.” The judge noted that the company made these claims “(w)ithout citing any documentary or testimonial evidence…”
The agency requested a dismissal, citing the lack of evidence and the fact that the injured worker received Workers’ Compensation benefits from the general contractor’s insurer. Because of that, they argued, the construction company had not been harmed.
The trial judge ruled in the agency’s favor, finding that it was unclear when the company received the certificate of insurance, and noting the standard disclaimers on it. It was unreasonable, she said, for the company to rely on it for coverage. She believed that the company sought coverage only after the injury and then wanted it to be retroactive. The insured appealed.
The appellate court found that the company had not produced evidence of a contract obligating the agency to obtain the coverage. They also agreed that the company had not been harmed; the worker received the required benefits and thus had no grounds for seeking them from his employer.
Why did the agency give the insured a sample certificate of insurance? The insured claimed that they relied on it. Many people interpret a certificate as a guarantee. Certificates of insurance are a significant source of errors and omissions claims against insurance agents. As this case demonstrates, handing out samples to insureds can backfire.
We don’t know what was said between insured and agent, but we do know that the insured latched on to a certificate like it was a policy. Certificates can cause an agency trouble, and they should be used carefully.