Most insurance agents routinely issue Certificates of Insurance and Additional Insured status for their clients. Sometimes they have the authority to automatically issue the Certificate because of a blanket additional insured endorsement to the underlying policy. Many insurance agents believe this gives them Carte Blanc authority to issue those Certificates. That simply is not true.
Additional Insured Status
An additional insured status on an insurance policy typically extends coverage to a third party (someone other than the named insured) in the event of a claim that relates to the named insured. For example a building owner might be an additional insured on a tenant’s general liability policy. Another example might be a company listed as an additional insured by a contractor on their general liability policy. In both cases if the Additional Insured is sued as a result of liability of the named insured, then some coverage would be afforded to the additional insured. This coverage is not typically direct liability coverage for the additional insured unless somehow as a result of liability from the Named Insured.
In most cases the additional insured status in the policy only applies in the event that the underlying insured has agreed to indemnify the additional insured in writing. So when a client calls an insurance agent and asks that that someone or some company be added as an Additional Insured. It is incumbent on the insurance agent to confirm that a written indemnification exists between the insured and the additional insured. What can happen from an E&O perspective is that the carrier winds up being on the hook for the defense and indemnification of the Additional insured and then the insurance company seeks recovery from the insurance agent.
The facts and circumstances of each individual case dictate whether the agent or the company ultimately wins, however, it is always a very difficult situation and can often be avoided with the proper internal policies. The best defense is a good offense. When a client asks for additional insured status on a Certificate, the insurance agent or broker should obtain sufficient documentation to support the extension of coverage.
Certificate Holders versus Additional Insured
A Certificate Holder is different from an Additional Insured. A Certificate Holder is simply someone requesting evidence of insurance and who is also requesting some notification in the event that the coverage is cancelled or modified. A Certificate Holder is not afforded any coverage under the policy. One common E&O claim relates to insureds that request requesting a Certificate of Insurance with a Certificate Holder. In some cases they really mean they need additional insured status because of a contract but are not up to speed on the lingo. We have seen many Errors and Omissions Insurance claims where a third party sued an insurance agent for issuing a Certificate of Insurance as a Certificate Holder as opposed to as an Additional Insured. This can be further complicated because often the insurance agent was not asked to provide an Additional Insured status for the client. The alleged negligence claim against the insurance agent comes because the agent allegedly did not ask for the details of the request which led to an inadequate Certificate of Insurance.
Our advice to insurance agents is that when issuing a Certificate of Insurance they explore the reason for the Certificate and any supporting details necessary. This may seem like a lot of work; however, it is necessary and can help mitigate errors and omissions insurance claims