2012 Changes to Certificate Compliance
Your certificates of insurance have just had a facelift. Thanks to a new law passed in the Texas Legislature, the way companies communicate insurance coverages through the use of ACORD certificates has fundamentally changed. The hope is that coverage miscommunications and misleading information will be a thing of the past. Senate Bill 425 went into effect on January 1, 2012 and requires certificates to only include language which is stated in the insurance policy. The purpose of the Bill is to ensure that certificates state what risks are being transferred to an insurance carrier through leases and contracts. Unlike previously, certificates can no longer quote wording from a contract, attach to an endorsement, or quote anything which amends a policy unless the policy itself has been amended.
This new law will require enhanced communication between property managers, tenants, lenders, attorneys, contractors, and their respective insurance professionals on the insurance language in their contracts, leases, and the forms of the insurance policy.
How do you recognize a compliant certificate?
- After January 1st 2012, a new liability certificate issued is not valid unless it is the Accord 25 (2010/05) edition. You can easily recognize this new certificate form because of the two new columns in-between the “type of insurance” column and the “policy number” column. (EXAMPLE AT END OF ARTICLE)
- The new “additional insured” column and “waiver of subrogation” column can only be marked “Y” if the certificate holder is specifically endorsed on the policy. There cannot be a “Y” in the column if the policy has a blanket additional insured or waiver of subrogation endorsement.
What if my certificates are not compliant with Senate Bill 425?
This new law applies to certificates of insurance issued after January 1, 2012, on operations located in Texas, regardless of where the certificate holder, policyholder, insurer, or agent is located.
Insurance agencies are required to follow these new changes and the Texas Department of Insurance has the power to enforce violators by:
- issuing a cease and desist order
- seeking an injunction
- imposing fines up to $1,000 for each violation
- and other penalties including license revocation
Changes To Look For:
The most common areas of conflict with old insurance certificates and the new law will be with the wording for additional insured, waiver of subrogation, notice of cancellation, and primary non contributory wording.
Additional Insured and Waiver of Subrogation
In the past, attorneys have required specific wording to be placed in the general information box to deem a certificate acceptable. The Texas Department of Insurance has now given agents recommended wording to place in “The Box” depending on the endorsements on their client’s policy. Companies will now need to re-determine what is acceptable language based on the coverages required by their lease or contract.
Notice of Cancellation
The new certificate has changed the notice of cancellation wording to:
“Notice of Cancellation - SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION DATE THEREOF, NOTICE WILL BE DELIVERED IN ACCORDANCE WITH THEPOLICY PROVISIONS”.
This wording cannot be legally changed on the certificate to match a contract or lease. The certificate issuer will now need to add the appropriate endorsement to the policy to guarantee notice of cancellation will be provided to the certificate holder. This is typically the Commercial General Liability: CG 02 05 (Amendment of Cancellation Provisions or Coverage Change).
Primary Non Contributory
Many contracts and leases request that subcontractor’s insurance be held “Primary and Non Contributory.” This means you want the subcontractor’s policy to be the primary source of recovery so that your policy does not contribute to defense or indemnification in the event that your company is sued due to an accident caused by the subcontractor or tenant. You don’t want to tap into your own CGL policy unless and until the subcontractor’s policy limit is exhausted.
If a company’s CGL is a policy from 1998 or later edition of the ISO CGL, it will include the following wording.
This insurance is excess over any other primary insurance available to you covering liability for damages arising out of the premises or operations for which you have been added as an additional insured by attachment of an endorsement.
If this language is included in a company’s CGL policy, then it is redundant to ask for the language on your subcontractor’s the insurance certificate. Some subcontractor’s policies though include a specific “Primary and Non-Contributory” endorsement. The TDI recommends that agents not write “Coverage for the additional insured will be primary and non-contributory.” on the certificate but include the endorsement number or copy of the endorsement instead.
Author: Kyle Cardwell – For questions or additional information, contact Kyle at 972-387-6739 or email at Kcardwell@swinglecollins.com.