The Texas Supreme Court recently confirmed that the common practice of accepting certificates of insurance from brokers as evidence that insurance requirements are met is a recipe for disaster. The court's opinion makes it clear that simply obtaining the certificate, without reviewing the underlying policy, provides only a false sense of security. The lesson in the case is this: if you care about coverage under another party's insurance policy, including such things as additional insured status, don't rely on a certificate of insurance. Get a copy of the policy and all the endorsements -- and read them.
In Via Net v. TIG Insurance Co., 211 S.W.3d 310, 314 (Tex. Dec. 22, 2006), the Supreme Court of Texas concluded it was not reasonable for a party to believe it was an additional insured under another party’s commercial general liability policy based only on a certificate of insurance provided by the other party’s insurance broker. After noting that certificates of insurance generally do nothing more than acknowledge the existence of a policy and its general terms, and do not specify “the numerous limitations and exclusions that often encumber such policies,” the court stated “those who take such certificates at face value do so at their own risk."
Other Texas Cases
This is not new law -- Texas courts have been building up to this decision over the past several years. For example, in TIG Ins. Co. v. Sedgwick James of Washington, 184 F.Supp.2d 591 (S.D. Tex. 2001) (Judge Nancy Atlas), aff'd, 276 F.3d 754 (5th Cir. 2002), the court held that the plaintiff, as the holder of a certificate of insurance, "should be held to the same obligation as a named insured to review a policy of insurance on which it seeks to rely, and its reliance solely on the agent's certificate of insurance is not reasonable under the circumstances." Id. at 603. The court noted that the plaintiff could have obtained the underlying insurance policy had it requested it, and observed that "the certificate stated to the holder that the certificate did not create coverage" because it stated that it was "issued as a matter of information only” and did not “amend, extend or alter” coverage provided by the policy. Id. at 604.
Based on these facts, the court dismissed the plaintiff's negligent misrepresentation claim as a matter of law because the plaintiff could not have reasonably relied upon the certificate. Id. at 604. See also Republic Waste Services of Texas, Ltd. v. Empire Indem. Ins. Co. , 98 Fed. Appx. 970, 971 (5th Cir. 2004) (under Texas law) (“the party claiming additional insured status is held to the same obligation as the policyholder to review the policy; reliance on a certificate alone is unreasonable.”); Scottsdale Ins. Co. v. Shahinpour, 2006 WL 870642, *5 (S.D. Tex. 2006) (holding that due to disclaimers in certificate of insurance, certificate would not support a breach of contract action and plaintiff erred "to the extent it attempts to premise its DTPA claims on representations in the certificate of insurance").