The BCS Insurance Tracking Blog

How to Obtain a 30-Day Notice of Cancellation: Despite the New ACORD Form

LIFE’S CONSTANT = CHANGE

Over the past eighteen months, since ACORD made their infamous changes to the ACORD 25 (2009/09) Certificate of Insurance, many Insurers and Insureds, Brokers and Agents, as well as Certificate Holders have changed the way they manage ACORD certificates and the information provided therein. One subtopic that is still in flux is the ACORD 25 (2009/09) CANCELLATION provision which reads:

“Should any of the above described policies be cancelled before the expiration date thereof, notice will be delivered in accordance with the policy provisions.”

How can you best address this issue with your vendors, when written contracts require these vendors to provide thirty (30) days notice of cancellation for insurance policies?

We last wrote about this topic in early January 2011 and offered a handful of options, some of which appear to be gaining support in the insurance marketplace. We will examine two of these options in more detail below.

OPTION 1: INSURER ISSUED CANCELLATION ENDORSEMENTS

The best option for Certificate Holders is to obtain a Notice of Cancellation Endorsement from the vendor’s Insurer(s) specifically scheduling the Certificate Holder. Endorsements modify the insurance policy contract and if written properly, the vendor’s Insurer(s) will provide the desired notice of cancellation.

One such Notice of Cancellation endorsement seen recently reads:

“In the event of cancellation or non-renewal of the insurance afforded by this Coverage Part, we agree to mail prior written notice of cancellation to the person(s) or organization(s) shown in the Schedule.”

The schedule then includes the Certificate Holder’s Name, Address where the notice is to be mailed and the number of days advanced notice is to be given.

Another Notice of Cancellation endorsement seen recently from a different Insurer reads:

“This Policy may be canceled by the Company by giving to the Insured and to the additional insureds indicated on the certificates of insurance issued during the term of this policy, at least Sixty (60) days written notice of cancellation or in the case of non-payment of premium, at least ten (10) days’ written notice of cancellation.”

Understand that these types of endorsements are not generally available and are used sparingly by Insurers, but we view this as a positive sign that the demand for affirmative Notice of Cancellation by Certificate Holders is impacting Insurers looking for a way to differentiate themselves.

OPTION 2: A MISCELLANEOUS ATTACHMENT TO THE ACORD 25 CERTIFICATE

“Should any of the described policies be cancelled before the expiration date thereof, the issuing Insurer will mail written notice in accordance with the policy provisions to the certificate holder named within the stated time frames of 30 days, except for reason of non-payment of premium at 10 days. Failure to do so shall impose no obligation or liability of any kind upon the Insurer, its Agents or Representatives.”

If this language looks familiar, it is close to how the pre 2009/09 ACORD 25 Certificate CANCELLATION language read. While not as clean cut as the first option, we view this as a positive step in providing the desired Notice of Cancellation to Certificate Holders.

IN SUMMARY

We believe the ACORD changes to their Cancellation provision, while causing a tremendous amount of heartache to all parties involved, is having a positive effect (and possibly the desired effect) of putting Insurers back in the business of managing cancellation notices on behalf of their Insured’s who have contractually agreed to provide such notice.

We will continue to monitor this issue and provide updates to you, our readers, in the hope of keeping you abreast of what we see in the insurance marketplace. We would appreciate your thoughts and feedback on this issue as well, so feel free to leave your comments below.

Should Your Vendors Carry Contract Liability Coverage?

CONTRACTUAL LIABILITY INSURANCE

Contractual liability insurance has been automatically provided in commercial general liability policies for over twenty years. However, more frequently, insurers will selectively eliminate the provision/s in the standard CGL coverage form to eliminate coverage for the most common instance of contract liability: One party indemnifying another party for tort liability.

To help your organization avoid this pitfall, we briefly explain which section of the CGL coverage form you should inspect to ensure coverage has not been removed.

THE ISO CGL COVERAGE FORM CG 00 01 12 07

Section (I)(1)(a) deals with coverage for bodily injury and property damage liability. The form states that the insurer “will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” to which this insurance applies.”

However, in Exclusions (2)(b) the form states coverage does not apply to (“bodily injury” or “property damage” for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement.”) At first glance, this seems to exclude coverage for the situation we described above. Not so. There are several exceptions to this coverage exclusion. For our purposes, we will focus on the language stating that the exclusion does not apply to liability for damages assumed in an ‘insured contract.’

The coverage form goes on to define ‘insured contract’ in a way that includes “That part of any other contract or agreement pertaining to your business… under which you assume the tort liability of another to pay for “bodily injury” or “property damage to a third person…”

To put it another way, the Coverage Form begins by stating it will cover certain tort damages the insured is obligated to pay, but not if the insured assumed that liability in a contract, UNLESS the insured assumed the liability in an “insurance contract.”

How does the insurer get around this? Simple, they just change the definition of “insurance contract” in the Definitions section of the Coverage Form so that it no longer actually provides you coverage.

The important section is the final paragraph, “f.” This paragraph states that an insured contract also means: “That part of any other contract or agreement pertaining to your business… under which you assume the tort liability of another to pay for “bodily injury” or “property damage to a third person…”

SECTION V – DEFINITIONS: (9)(f) is what BCS would advise you to inspect in the CGL CG 00 01 12 07 form your vendors submit. If paragraph (f) has been modified or deleted from how it appears above, you may have a problem. While this is certainly not a catch-all guarantee for knowing that your vendor indemnity provisions remain intact, it is a very good place to start.

ACORD Changes: The Additional Insured & Waiver of Subrogation Columns

The ACORD form has undergone recent changes, and with these changes come questions about how to interpret the new form. BCS offers some basic tips and instructions for one of the most commonly misinterpreted and misleading parts of the new ACORD form – the additional insured and waiver of subrogation columns.

The Additional Insured and Waiver of Subrogation Columns

In the sample certificate below, the insurance agent has placed an “X” inside of the additional Insured and waiver of subrogation columns. This “X” could either indicate that there is coverage, or there is not coverage. What if the agent had marked “√”, or even “+”? Are these symbols ambiguous? Agents may have their own idea as to when their symbol of choice means there is coverage, and when it means there is not coverage; however, the burden ultimately falls on the risk manager to evaluate the meanings of these different symbols, on hundreds or even thousands of certificates. For this reason, ACORD has issued guidelines for insurance agents to follow when issuing a certificate of insurance.

ACORD Guidelines

ACORD guidelines state that in the additional insured column on the certificate, agents should enter “Y” for yes, if there is coverage and “N” for no, if there is not coverage. This is the standard for indicating whether or not a policy includes additional insured or waiver of subrogation coverage. The “Y” and “N” can be clearly understood by all who read the certificate. Agents should not be using ambiguous marks such as “X,” “√,” or “+.”

Remember, regardless of what’s indicated in the columns of the certificate, the certificate itself is not proof of the coverage. You need copies of the actual vendor’s general liability policy additional insured and waiver of subrogation endorsements in order to confirm whether or not the policy extends that coverage. An ACORD certificate only provides you with an indication of what the insurer and agent intended to convey.

As we discussed in prior articles, the Acord 25 (2009/09) states:

“If the certificate holder is an ADDITIONAL INSURED, the policy(ies) must be endorsed. If SUBROGATION IS WAIVED, subject to the terms and conditions of the policy, certain policies may require an endorsement. A statement on this certificate does not confer rights to the certificate holder in lieu of such endorsement(s).”

What this means for you is two-fold. First, examining only a certificate is not proof of coverage. If you are unsure as to whether the proper additional insured, waiver of subrogation, or other policy endorsements are in effect, the only way to know for sure is to collect and inspect those physical endorsements. Second, keep in mind that on the certificate of insurance, agents should not use ambiguous marks and symbols to indicate coverage, as outlined by ACORD.

Transferring Vendor Risk – A 10 Question Survey

It is very common for businesses to hire vendors to perform routine work, and provide
products and services. In doing so, organizations have an expectation that if the vendor
causes injury to a third party, the vendor’s insurance coverage will be triggered, and
defend and indemnify them. This protects those businesses which rely on vendors, by
ensuring that liability stays with the party responsible for the loss.

Consider this scenario: Your company hires an electrician to perform maintenance work
on a light fixture at one of your facilities. The electrician’s employee does not properly
perform his work, and two weeks later the light fixture falls and hits someone on the
head, causing injury.

After learning of the incident, you report the claim to your insurance provider. In turn,
your insurance agent asks you for a copy of the electrician’s insurance certificate, as
well as any contract you have in-place with the electrician. You quickly discover the
only insurance certificate you collected from the electrician is now expired, and you are
unsure as to whether you ever had a formal contract in place with them.

As a result, instead of the electrician’s insurance policy paying for the claim, you
are stuck with the bill. You must look to your own insurance policy for defense and
indemnification, and it is your insurance that takes the hit, not the electrician’s.
The following questions will evaluate whether or not you have an effective risk transfer
strategy in place for dealing with the above scenario, or one like it. Improving your own
vendor risk transfer strategy will help reduce the likelihood and impact of vendor-related
claims when they arise, and help ensure that your organization is properly addressing
vendor risk.

1. Do you Have a Written Contract with all Vendors, or alternatively track all
Purchase Orders?

Requiring and maintaining written contracts with all vendors is a preferred option in
an overall vendor risk management strategy. Alternatively, if you use purchase and
work orders with your vendors, the same basic principles apply. Most commercial
general liability additional insured endorsements require a written contract
between the insured and an additional insured before the insurer will consider
extending coverage to the additional insured party. It is very likely that the contract
will need to explicitly state that the vendor must include the hiring party as an
additional insured on the vendor’s commercial general liability policy. Maintaining a
written contract with all vendors is preferable here, to ensure your company can be
properly named as additional insured.

2. Do Your Vendor Contracts Include Indemnity/Hold Harmless Language?

Indemnification is a key provision in a contract which requires one party to assume
the financial responsibility of the other party. Typically, the hiring organization
will impose a ‘hold harmless’ responsibility on the vendor. For example, vendor
contracts typically require the vendor to indemnify the organization with respect
to the organization’s liability to members of the public who are injured, or whose
property is damaged during the course of the vendor’s operations.

3. Do Your Vendors Carry Appropriate Insurance?

An indemnity clause is only valuable so long as the vendor responsible for the
accident on your premises is financially solvent. Requiring the vendor to also
maintain insurance coverage is recommended, because it allows your organization
to rely on the insurance company to pay for a claim, not the vendor directly, should
a claim arise. Your vendors should always be properly insured before performing
any work for you.

4. Are Your Contracts Executed by Both Parties Prior to the Start of Work?

Countless claims are denied each year because a contract between two parties is
invalid. A common reason is because both parties had not signed a final agreement
memorializing their contract, and due to the nature of the contract at stake, either
no formation occurred, or alternatively the final terms differ from how one party
intended.

5. Have You Collected and Reviewed the Vendor’s Certificates of Insurance?

Review of the vendor’s insurance certificates should be based on the insurance
requirements within each individual vendor contract. This may or may not contain
differing terms from the standard vendor contract template your organization
typically uses. It is surprisingly common for companies to routinely make one-off
changes to contracts or service agreements when contracting with new vendors.
Unless these are properly documented and readily available, you may be mistaken
about the actual responsibilities individual vendors have regarding their obligations
to purchase and maintain insurance.

6. Have You Collected and Reviewed the Vendor’s Key Insurance Policy
Endorsements?

If your contract with the vendor requires them to carry and maintain certain policy
endorsements and coverage, it is important that you collect and inspect those
policy endorsements, rather than simply assume the vendor actually maintains that
level of coverage. Insurance agents and brokers routinely attempt to substitute one
policy endorsement for another, often times inserting endorsements that materially
differ from the endorsements you specifically require. You must inspect each key
endorsement to determine if it in fact is materially similar to what you require.

7. Are you Following-up on Updated Certificates when Policies Expire?

Insurance certificates can contain numerous policies, all of which could potentially
expire at various points throughout the year. To ensure the vendor has not lapsed
on any particular policy, you need to collect a renewal certificate every time a single
policy expires.

8. Do you Have a Developed System for Following-up with Vendors?

The amount of certificates you collect from vendors can quickly pile-up. This ever
growing stack of paperwork can become overwhelming. The solution is to implement
an efficient system to manage the certificates of insurance, become alerted to policy expirations
or cancellations, and have the ability to communicate directly with vendors and their
agents when the time comes to collect renewals.

9. How do you handle Non-Compliance and Exceptions with your Vendor’s Insurance?

When you work with tens, hundreds, or even thousands of vendors, one-off
situations are bound to arise. An advantage of having a well organized vendor
risk management program is the ability to execute and manage one-off vendor
situations. If a vendor’s contract requires them to carry a particular coverage, yet
you determine that for the work they are engaged they don’t actually need that
coverage, you should have a system in place to record the exception. Next, make
sure the required parties have signed-off on the exception, and the entire process is
properly documented.

10. Do Your Contractors use Contractors?

If your contractors use subcontractors, many of the above steps and procedures
apply to them, as well. This additional step can really put your vendor risk
management strategy on track.

How Do the Recent ACORD Changes Affect Your Vendor Screening Policies?

ACORD recently made several changes to their standard certificate of liability
insurance form, currently one of the most widely used insurance certificates.
This alteration poses several important risk management issues for companies
that contract with suppliers and vendors.

The most-discussed change to the ACORD 25 (2009/09) form is to the Cancellation
provision; wherein specific language to provide notice to the Certificate Holder in
the event of a policy cancellation had seemingly been removed.

The prior language on the ACORD 25 (2009/01) form read: “Should any of the
above described policies be cancelled before the expiration date thereof, the
issuing insurer will endeavor to mail _____ days written notice to the certificate
holder…” In short, the above language stated that if any of the policies listed on
the ACORD form were cancelled, the insurance provider would send notification
to the affected certificate holder/s. The space was left blank so that an insured
could have their insurance agent or broker write-in a number of days notice of
cancellation.

The new language on the updated ACORD 25 (2009/09) was changed to read:
“Should any of the above described policies be cancelled before the expiration
date thereof, notice will be delivered in accordance with the policy provisions.”
This new language caused much debate, because upon initial glance it seemed to
remove the ability for the insured to specify how many days notice the Certificate
Holder would receive in the event of policy cancellation.

In reality, the new ACORD form language reinforces that the language of the
policy, not the certificate, is what matters. The point to consider is that the
protection offered by the earlier ACORD form cancellation language was largely
illusory. In the earlier form, by stating that the insurer “will endeavor to mail”
notice, and that “failure to do so shall impose no obligation or liability of any
kind upon the insurer,” these caveats eroded the insurer’s or agent’s obligation
to provide notice of cancellation. Even if an insurer indicated on a certificate that
they would mail 30 days notice of cancellation, unless they were required to do
so by the policy, they were likely under no obligation to actually provide that
30 days notice.

The new ACORD form cancellation language simply states what the previous form
meant, namely, the cancellation notice will be mailed in accordance with what the
actual policy requires, not based on what is written on the ACORD form. On the
ACORD form it states: “This certificate is issued as a matter of information only
and confers no rights upon the certificate holder.” In other words, the actual policy
is what counts.

This change to the ACORD form has several implications. For example, many
vendors have contract stipulations requiring them to provide a specific number of
days cancellation on their policies. With the new ACORD form, it is less apparent
or indicative of whether that protection is actually part of the policy.
Certificate Holders have several options in light of the new ACORD form language.

These suggested actions include:

• Collect follow-up certificates of insurance on a quarterly basis, rather
  than on the insurance policy anniversary date. This allows for regular
  confirmation that the required insurance is still in force and the premium
  has been paid up through the date the certificate was issued.
• Ask the insured to modify their insurance policy by endorsing the
  required cancellation notice language. Then, collect a copy of the
  cancellation notice endorsement along with the certificate.
• Remove and / or modify the cancellation wording in the insurance
  section of vendor contracts.
• Collect a copy of the insured’s insurance policy and review the
  appropriate cancellation notice language directly, to see what the policy
  actually says, rather than relying on ambiguous certificate wording.
• Ask the insured to work with their insurance agent to provide
  cancellation notice to the Certificate Holder. Some insurance agents are
  beginning to see this as an additional service they can provide to their
  insureds, though it should be approached on a case-by-case basis, as
  insurance agent services and ability varies greatly.



As always, the main consideration is time and expertise. The new ACORD changes
may or may not affect your company’s risk management strategy or vendor
relations. This depends on what your current vendor requirements are, and
whether your vendors actually follow these requirements. If your organization
may be affected by this change, you need to have properly trained staff available
to review vendor insurance certificates, to determine whether they are in
compliance with terms and conditions after their insurance broker begins using
the new ACORD forms.