Insurance Recovery June 2011 Client Advisory regarding Keeping track of insurance coverage as an additional insured - a complex undertaking under normal circumstances - has gained yet another layer of complexity.  The notice of cancellation language on many popular certificates of insurance has changed - increasing the likelihood that certificate holders will not know if the policies under which they should be insured have been cancelled.  This advisory will discuss how certificate of insurance language has changed, the exposure the new language creates, and some strategies that additional insureds might consider to reduce the likelihood of being surprised by cancellation or nonrenewal.

Prior editions of popular certificate forms produced by ACORD (the Association for Cooperative Operations Research and Development) contained assurances that the certificate holder would receive notice in the event an insurance company cancelled the policy prior to its expiration, stating:

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 the event the insurance policy is cancelled.

ACORD eliminated the notice requirement from the cancellation text.  The revised certificates now contain the following language in its place:

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

Therefore, many certificate holders, including additional insureds, will not receive notice of cancellation unless the policy itself provides for such notice - any many do not.  This change could result in significant consequences in the event a covered loss occurs after an unknown cancellation of the policy. 

What can you do to minimize the risk that you might be caught in this situation?

The safest choice is to request the insured have its insurer amend or endorse the policy to state expressly, in the policy itself, that the certificate holder will receive the same notice rights as the named insured.  While insurers may resist this, some insurers will provide these endorsements.  Be persistent and seek assistance from your broker, as this may be the only way to ensure you get proper notice of cancellation. If alterations to the policy itself are not feasible, there are several alternatives that, while not perfect solutions, will increase the likelihood you will receive notice of cancellation and shift the risk of a failure to notify you of cancellation to the named insured.  Consider including the following contractual requirements in your contract with the named insured:

  • Require the named insured to provide immediate notice to the certificate holder if the insured receives any notice of cancellation or nonrenewal from its insurer.   For large or important downstream contractors, put in place a procedure to confirm the downstream contractor's insurance remains in force both during and after completion of the project. 
  • Require all downstream contracting parties to provide you with updated certificates of insurance every 30 days or as part of the backup for their applications for payments.  While this may increase the administrative burden, it should provide notice of changes or cancelation in coverage, which could result in significant cost savings in the long run.  

At a minimum, even if you do not utilize one of the above strategies, you should require the insured to include a verbatim recitation of its policy's actual cancellation language on an ACORD Form 101 Additional Remarks Schedule.  This form is used as an attachment to any ACORD form when more space is required for additional remarks or comments.  Although this may not provide you with notice of cancellation or nonrenewal, this will ensure that you have an accurate understanding of who is entitled to notice of cancellation under the policy.

Finally, be wary if a subcontractor tries to provide you with an ACORD certificate of insurance that contains the old notice of cancellation language.  Even if you can procure a certificate containing the old language, this does not change the language of the policy itself, and insurers may not stand behind the old certificate.  Further, ACORD takes the position that the old certificate form should not be used.