Certificates of insurance are a leading cause of errors and omissions claims against insurance agents. If a certificate contains misinformation and an uninsured loss subsequently occurs, litigation against the agent is a sure bet.
An Oklahoma agency made repeated errors on certificates issued to a restaurant’s landlord. Although the agency ultimately escaped legal liability, the judge in the case criticized its handling of the situation.
The lease between the landlord and restaurant required the restaurant to carry four types of insurance but did not specifically mention coverage for loss of rents. For four years, the landlord carried its own business income insurance, but the policy eventually canceled.
According to the record, the building owner’s bookkeeper asked the tenant’s insurance agency to issue certificates of liability and property insurance naming the owner as additional insured on the tenant’s coverage. The record is unclear, but since additional insureds are a allowed on liability coverage and not property coverage, it could be that she had her terms confused. Later, she could not recall whether she asked the agency to verify that the owner was covered for loss of rents. She also could not recall reviewing the certificates to see if the coverage was mentioned.
The agency issued a certificate of property insurance listing the landlord as an insured and as the certificate holder. Boxes on the form denoting coverage for the building and personal property were checked, but those for business income and loss of rents were not.
At renewal, the agency obtained policies from a different insurer. They issued a property certificate identical to the previous one, listing both the tenant and landlords as insureds, although the new policy named only the tenant. They also issued an evidence of commercial property insurance form listing both parties as named insureds and the landlord as an additional interest. It indicated coverage for business income but not loss of rents.
A few months later, a fire significantly damaged the building. The lease released the tenant from having to pay rents during the repair period, costing the landlord more than $150,000 in lost income. The landlord filed a claim for the lost rents with the tenant’s insurer, citing the certificate of property insurance naming them as an insured.
The insurer denied coverage because the property insurance policy did not name the landlord as an insured; the lease did not require the tenant to obtain loss of rents coverage for the landlord; and the certificate stated that it was informational only and did not create a contract between the landlord and insurer. The landlord sued the insurer and the agency, who moved to have the case dismissed.
The judge found that the landlord was not justified in relying on the two property insurance certificates. The certificates, he said, were unclear on the subject of business income insurance; the lease indicated that neither party expected the tenant to obtain loss of rents coverage for the landlord; the landlord never asked for or read a copy of the property insurance policy; and they never requested loss of rents coverage.
Further, he held that the insurer and agency did not conceal information because the agent “never checked the policy to learn that the CPIs and ECPI were incorrect,” and the insurer did not know about the incorrect certificates until the claim was filed. The judge found no bad faith on the insurer’s part, and he ruled that the agency was not negligent in obtaining coverage because the landlord never requested loss of rents coverage. Nevertheless, he wrote that the agency’s “apparent carelessness is troubling, issuing several incorrect insurance forms in 2014 and even again in 2016 after the … fire…”
The agency repeatedly issued incorrect certificates of insurance without checking the listed policies. In doing so, they invited an E&O claim, even an unsuccessful one. An agency should never make representations on a certificate without verifying that they are accurate. Some state laws expressly prohibit using a certificate to alter a policy’s coverage.
Certificates of insurance have come to be more than the mere snapshots of coverage for which they were intended. Certificate holders are quick to cite them after an uninsured loss. Agencies must take care to issue certificates that are accurate.