It has been reported that certificates of insurance account for 1 out of every 25 errors and omissions liability claims against insurance agents. Despite all the disclaimers printed on certificates, some people choose to view them as complete representations of all the limits, terms and conditions of the policies listed on them. A one-page document cannot be any such thing. Nevertheless, incomplete information on a certificate can get an agency a lawsuit.
A North Carolina agency had a trucking company for a client. The relationship started in 2016, when the insured gave the agency a vehicle schedule and a copy of its current commercial auto policy. Based on this information, the agent obtained a replacement policy for the period of March 11, 2017 to 2018.
The company obtained some of its vehicles from a rental company. Some were provided under long-term leases, while others were rented for shorter periods. The 2017-18 policy scheduled the leased vehicles but not the rentals. The policy provided physical damage coverage on the scheduled vehicles, but not on the rented ones.
In late 2017, the insurance carrier for the rental company contacted the agency and requested a certificate of insurance that would show the automobile liability insurance limits applicable to the leased and rented vehicles, along with the applicable physical damage coverage deductibles. The court opinion does not specify the form that the agency used, but it appears that they may have issued an ACORD 25 Certificate of Liability Insurance because the certificate “did not mention collision coverage.”
The carrier rejected the certificate and requested a new one that would show the liability limits and physical damage deductibles. The agency added the words “Specified Perils/Collision Deductibles: $2500” to the certificate and sent it back. The agency did not provide a copy to its insured.
The insured renewed the policy for the 2018-19 term, and the agency sent a new certificate to the rental company’s carrier. The certificate was identical to the previous one except for higher deductibles. Again, the agency did not copy the insured on the certificate.
That summer, the trucking company rented a truck from the rental company for a short term. The truck was damaged in a collision. The insurer denied coverage for the subsequent claim because the policy did not insure rented vehicles for physical damage.
The insured sued the agency for a variety of complaints. The trial court ruled in the agency’s favor, and the insured appealed.
The appellate court noted that the insured’s former policy, which they had given to the agency to model, did not provide physical damage coverage on short-term rentals. They also rejected the insured’s argument that the two certificates sent to the insurance carrier created additional obligations, as the insured did not receive them and therefore could not rely on them. What they should have relied on, the judges said, was the insurance policy in their possession. The trial court’s ruling was upheld.
This agency may have used an incorrect certificate form. ACORD 23, Vehicle Or Equipment Certificate Of Insurance, is designed to list the coverages for an individual vehicle, including liability and physical damage coverages and deductibles. If the agency used this form for the truck in question and accurately showed no physical damage coverage, the carrier likely would have notified the rental company, who would in turn have asked its customer to buy physical damage coverage on the truck. That might have prevented the entire legal dispute.
Certificates of insurance can be an E&O danger for agencies. Using the proper form with accurate information can help prevent problems like this one.