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ACORD Insurance Certificates

Insurance Certificate exampleThere are three standard forms of insurance certificates from ACORD, the industry-supported organization that is charged with standardizing certificates of insurance. Although only three of ACORD’s more than 300 forms are certificates of insurance, they account for more than 10 percent – or 6 million – of the printed forms they issue.

The three ACORD forms are: the Certificate of Liability Insurance (ACORD 25-S); Certificate of Property Insurance (ACORD 24); and the Evidence of Property Insurance (ACORD 27). Each form has its own use.

The ACORD 25-S proves liability coverage, and is used to show a concerned party that another party has liability insurance in place. A simple example of the use of ACORD 25-S is that of a building owner needing to verify liability coverage of a contractor prior to the contractor beginning work.

The ACORD 24 is the property version of the 27-S and is used as evidence that appropriate property coverage is in place. Form 24 might be used by a building tenant who is required to maintain property coverage on leased premises.

ACORD 27 is for when the certificate holder has interest in the covered property, such as a lien holder or mortgagee. This form provides an assurance for mortgagees, additional insureds and loss payees that the property is properly insured.

The certificate of insurance is merely evidence of insurance coverage. It is not a policy, nor can it be relied on as a policy. It is not coverage itself.

Insurance Certificate Regulations

Millions are prepared annually. People ask for them, people prepare them. They are so much a part of the business environment that people take them for granted. But like anything that is taken for granted, carelessness and indiscretion often follow. And then comes liability and state regulation.

This is the state of affairs for certificates of insurance—those documents that purport to describe the particulars of a party’s existing insurance coverage. In the last four years alone, 44 states have enacted legislation, adopted rules or issued clarifying bulletins through their departments of insurance addressing certificates of insurance. All but five states now have laws, regulations or guidance addressing them.

While not all states regulate certificates the same way, enough principles remain in common to be suitable guides for knowing what not to do with a certificate. Yet misunderstandings still arise. For instance, many certificate requestors have thought they can require a policyholder, through a certificate of insurance, to advise them of any changes to, or cancellation of, the policy. Naturally, the requestor has a valid concern. If a party wishes to know whether insurance coverage is in place, it very reasonably would wish to know if that coverage will change or cease. But a certificate is not the document to address that concern. If a party wishes to be notified of changes in the policy or cancellation notices, the party should obtain an endorsement from the insurance company to that effect. For this reason, many states warn that a certificate cannot promise policy notices; the certificate holder gets what the insurance policy says the holder gets. As the ACORD form states: “Should any of the above described policies be cancelled before the expiration date thereof, notice will be delivered in accordance with the policy provisions.”

If one is not using a broker, the risk manager should ensure that all individuals preparing certificates are using the most current ACORD form and that they are not altering it in any way. Examples include, altering the form to reflect that: 1) a contracting party will receive advance notice of any change to, or cancellation of, the insurance policy; 2) the company will indemnify the other party for general liability arising from the contract; 3) the insurance coverage referenced in the certificate will be provided according to the contract between the parties; or 4) language that says the certificate confers no rights to insurance will be deleted.

In short, do not mess with the forms. Prepare them accurately and let them speak for themselves. Anything more can result in trouble.

What is a Certificate of Insurance?

A certificate of insurance is a document used to provide information on specific insurance coverage. The certificate provides “proof” of the insurance and usually contains information on types and limits of coverage, insurance company, policy number, named insured, and the policies’ effective periods.

A certificate of insurance is often demanded in situations where liability and large losses are a concern. For example, a company wishes to hire a driver from a temp agency. The company will most likely ask the agency to show them a certificate of insurance that proves that certain liabilities will be covered by insurance in the event the driver causes problems, such as incurring damages from driving the company’s vehicles.

Policyholders may request a certificate of insurance for many reasons. Some of the more common are:

  • They are a tenant, and a building owner is requesting information about the existence of liability insurance coverage
  • They are the mortgagor of a building, and are requesting information about the existence of property insurance coverage upon closing or renewal
  • They leased equipment and the owner of equipment wants information about the existence of property insurance coverage while equipment is in possession of the client
  • They need evidence of workers compensation insurance in order to obtain a contract

Such requirements are particularly common in construction contracts with large contractors, government entities, and major corporations. For contracting purposes, insureds are required to name or schedule specified persons or organizations onto their insurance policies. Such requests are accommodated by adding endorsements to the insurance policies. Collecting actual copies of the required insurance endorsements along with the certificate of insurance is essential, as certificates generally do not alter, extend or afford coverage to any party other than the named insured(s).

Certificates are simply snapshots of basic policy coverages and limits at the time of issuance of the certificate. Certificates cannot modify coverages or change the terms of the insurance contract.

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