Certificates of insurance are a leading source of errors and omissions claims against insurance agencies. An Oklahoma agency learned this first-hand.
The owner of a commercial property in Oklahoma City leased it to a company that operated a restaurant under a separate name. The lease required the tenant to carry four types of insurance:
- Fire and extended coverage on personal property, trade fixtures and merchandise
- Fire and “extended casualty coverage” on the building structure
- Public liability
- Workers Compensation
The lease also required the tenant to name the owner as an additional insured with regard to these coverages and to periodically provide evidence of insurance to the owner. It also absolved the tenant of having to pay rent during the repair period following a fire that caused significant damage to the building.
For four years, the owner carried its own loss of rents insurance. That policy cancelled in early 2014. The owner’s bookkeeper then contacted the tenant’s insurance agency and asked for certificates of liability and property insurance naming the owner as an additional insured for the balance of the 2014 term.
The agency issued a certificate of property insurance naming the owner as an insured. The certificate had the boxes for building and personal property coverage checked, but not the box for business income and rental value.
Near the end of the policy period, the owner asked the tenant for updated proof of coverage. The tenant submitted new applications for insurance to the agency, which bound coverage with a new carrier. The agency then issued a new certificate of property insurance showing the new carrier and policy term and listing both the owner and tenant as insureds. However, the carrier had bound coverage only for the tenant.
The agency’s account manager re-issued the certificate with the same error three times over the following 15 months. She also issued an evidence of commercial property insurance form naming the owner as an insured and an additional interest. It evidenced coverage for business income but not for rental value.
In March 2015, a fire damaged the building. The repairs took nine months, during which time the tenant did not pay rent as allowed by the lease. The tenant settled claims with the insurance carrier for building damage and lost business income. The owner submitted a claim to the carrier for lost rents totalling almost $151,000. The carrier denied coverage to the owner, claiming:
- The policy did not list the owner as an insured
- The lease did not require the tenant to insure the owner for loss of rents
- The certificate that listed the owner as an insured included the disclaimers commonly found on certificates of insurance
The owner sued the carrier and agency for fraud and the agency for negligence in procuring the insurance. The carrier and agency, arguing that the facts were not in dispute, moved for a ruling in their favor based on the law.
The judge found that the agency did misrepresent the coverage on the certificates and may have intended to do so. However, he also ruled that the owner was not justified in relying on the certificates. He said that the representations were ambiguous; the lease did not require the tenant to provide loss of rents coverage; the owner never asked for the coverage; and the owner never asked to see the policy.
He also found no evidence that the agency intended to defraud the owner, noting that it “never checked the policy to learn that the (certificates) were incorrect.” Lastly, he found that the agency was not negligent because it never promised to obtain business income coverage for the owner and because it “cannot be held negligent for ignoring a request that Plaintiff never made.” For these reasons, the judge ruled in favor of the agency and carrier.
The agency’s work in this situation was sloppy. A certificate of insurance is supposed to be an accurate representation of the coverage. The agency repeatedly issued certificates that were far from accurate. It was fortunate that the property owner had a weak case.
The lesson is clear: Agencies must take care when issuing certificates of insurance that the information they contain is accurate. Failure to do so invites lawsuits.