Every time I give a presentation that includes Additional Insured coverage, people get excited. Not because of what I have to say, but because they are upset about certificates of insurance. As one audience member recently asked “Are they worth the paper they are written on?” This is an understandable question, because certificates are widely used but poorly understood. A certificate of insurance is used where one party is contractually obligated to name another party as an “additional insured” on its policy. This is common, for example, with general contractors and their subs. The certificate will typically state that the general is an additional insured on the sub’s policy. The trouble is, this document is simply a representation made by the sub’s broker, and is not– by itself– a binding contract with the insurer. To form a binding contract, the insurer must issue an endorsement to the policy, specifically adding the additional insured to the contract. Thus, a party seeking additional insured status should always make sure they get an actual endorsement in their favor, and not simply a “certificate.”
If all you have is a certificate, all may not be lost. Discovery may show that the information was sent to the insurer and that it did issue the endorsement after all. Discovery may also be conducted against the broker, to determine if it is an agent for the insurer, in which case the representation would be binding on the insurer. Discovery into the broker’s prior dealings with the insurer on certificates may also demonstrate it had implied or apparent authority to extend coverage in this manner. The broker, of course, has every interest in helping establish such authority to avoid a possible negligent misrepresentation or fraud claim by the additional insured.
We recently covered this topic in the Bridgeport sponsored seminar “Understanding the Current CGL Form in California,” We’ll be giving the same seminar, including a discussion of additional insured coverage, in Los Angeles on January 30, 2009. (Click here)