Can You Rely on a Certificate of Insurance

Commercial contracts often require that the parties maintain certain liability insurance and that the policies also contain endorsements extending benefits, such as additional insured status and waiver of subrogation.  In order to confirm compliance with the contract provisions, parties are generally required to produce a certificate of insurance from the broker stating that the insurance is in place and that the benefits required by the contract are in the policies.

What happens when a loss occurs and it turns out that the policies are not in place or that the benefits, such as additional insured status, are not in the policies?  The standard certificate of insurance states that the certificate is issued for information only and confers no rights upon the certificate holder.  The certificate also states that it does not amend, extend or alter the coverage described in the document.  Is this effective?

In most states the language in the certificate is enforceable and in the event the described coverage does not exist, then no remedies exist against the broker or the insurance company.  As the New Hampshire Supreme Court said, “In effect, the certificate is a worthless document; it does no more than certify that insurance existed on the day the certificate was issued.”  Bradley Real Estate Trust v. Plummer & Rowe Ins. Agency, 136 N.H. 1, 609 A.2d 1233, 1235 (N.H. 1992).  See also Mountain Fuel Supply v. Reliance Ins. Co., 933 F.2d 882, 889 (10th Cir. 1991)(applying Wyoming law); Taylor v. Kinsella, 742 F.2d 709, 711 (2nd Cir. 1984)(applying New York law); Erie Ins. Exchange v. Gosnell, 246 Md. 724, 230 A.2d 467, 469 (1967); Alabama Elec. Co-op., Inc. v. Bailey’s Constr. Co., Inc., 950 So2d 280, 285-86 (Ala. 2006)(reliance on a certificate of insurance is not reasonable in light of disclaimers); Via Net, US v. TIG Ins. Co., 211 S.W.3d 310, 314 (Tex. 2006)(“[T]hose who take such certificates at face value do so at their own risk”). 

Recently the Washington Supreme Court held to the contrary.  T-Mobile USA, Inc. v. Selective Ins. Co. of America, 2019 WL 5076647, *7 (Wash. 2019)([A]n insurance company’s agent who makes an authoritative representation binds the insurance company, even when that specific representation is transmitted via a certificate accompanied by general disclaimers”).  It should be noted that in T-Mobile the Court found that the broker had apparent authority to act on behalf of the insurance company. 

The result of the majority view requires that in order to verify that another party’s insurance policies comply with the requirements in a contract the policies themselves should be reviewed.  Unfortunately, many companies are unwilling to provide their policies for review.  A further difficulty is that, even if the policies were provided, insurance policies are difficult contracts for a lay person to construe. 

A second alternative, one that has been gaining use, is to require that the certificate of insurance include copies the portions of the policy which show compliance with the contract requirements.  This would include, at a minimum, the additional insured, wavier of subrogation, and primary and non-contributory endorsements, and potentially the declaration page and the schedule of forms and endorsements.  Again, these policy provisions are often difficult for a lay person to construe.

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