The BIG Change in The ACORD Certificate Massachusetts RIMS Chapter Spring Conference 27 March 2014
The BIG Change in The ACORD Certificate Disclaimer: The views and opinions expressed here are not those of Lexa International and are not intended to endorse, promote, or discredit any particular insurer or their practice (s). 3/19/2018 David S. Hershey© CPCU, CRM, CRIS, AMIM, ARM, MLIS 2
The BIG Change in The ACORD Certificate • 7+ Countries, 25+ States • $5. 5 B annual sales (2013) • Petroleum wholesale & distribution (international) Ø 2 B+ gallons of petroleum, 100 BCu. Ft Nat Gas, 17 Terminals • Municipal water treatment equip. mfg. (international) Ø Treats 7 T+ gal / year • Residential water treatment systems mfg. and dist. (international) • Medical device manufacturing & distribution (international) Ø Razors, Machine knives, Syringes, Hand held cutting tools • Medical device manufacturing (international) knee replacements • Lumber recycling (international) Ø Mount Vernon, Truman Library, home of James Madison • College student housing (regional) • Business Application Software Development (Italy / USA based) 3/19/2018 David S. Hershey© CPCU, CRM, CRIS, AMIM, ARM, MLIS 3
The BIG Change in The ACORD Certificate Typical Contractual Requirement for No. C “Non-renewal or cancellation of polices described above will be effective only after written notice is received by [Certificate Holder] from the insurance company thirty (30) days in advance of any such non-renewal or cancellation. ” 3/19/2018 David S. Hershey© CPCU, CRM, CRIS, AMIM, ARM, MLIS 4
The BIG Change in The ACORD Certificate Reasons for the No. C • Enables benefactor to: – Better select deductibles – Better select SIRs – Improve loss ratios / renewal terms / rates – Obtain a secondary assurance on creditworthiness of Insured – Provide a level of assurance to other customers of the benefactor, the presence of insurance 3/19/2018 David S. Hershey© CPCU, CRM, CRIS, AMIM, ARM, MLIS 5
The BIG Change in The ACORD Certificate Who is ACORD? Regular membership is open to any organization that meets the criteria specified below: • Any organization engaged in the business of underwriting, and/or selling, distributing or otherwise providing life, annuities and health; property, casualty and surety; or reinsurance. • Any nonprofit trade association representing individuals or firms, producers, brokers, agents or intermediaries engaged in the business of underwriting, and/or selling, distributing or otherwise providing insurance products or other financial products or services.
The BIG Change in The ACORD Certificate • Effective 10/1/2009 • Modification to the Insurance Cert • Removal of the No. C to Certificate Holder
The BIG Change in The ACORD Certificate Why the Change? “The wording at the top of ACORD 27 and ACORD 28 was changed at the request of a large insurers association, an agents association, and several individual insurers. The reason for these changes was because of an inaccurate perception among individuals and organizations not in the insurance business that somehow the form itself conveyed rights. In fact, only the policy can convey rights under the policy. The new wording across the top of the form simply states facts. ” 3/19/2018 David S. Hershey© CPCU, CRM, CRIS, AMIM, ARM, MLIS 8
The BIG Change in The ACORD Certificate • Old language: (ACORD 27) “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 named to the left, but failure to do so shall impose no obligation or liability of any kind upon the insurer, its agents or representatives. ” 3/19/2018 David S. Hershey© CPCU, CRM, CRIS, AMIM, ARM, MLIS 9
The BIG Change in The ACORD Certificate One commonly attempted solution was to “modify the endeavor to” language to read: “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 named to the left, but failure to do so shall impose no obligation or liability of any kind upon the insurer, its agents or representatives. ” 3/19/2018 David S. Hershey© CPCU, CRM, CRIS, AMIM, ARM, MLIS 10
The BIG Change in The ACORD Certificate • New Language: (ACORD 27) “Should any of the above described policies be cancelled before the expiration date thereof, notice will be delivered in accordance with the policy provisions. ” 3/19/2018 David S. Hershey© CPCU, CRM, CRIS, AMIM, ARM, MLIS 11
The BIG Change in The ACORD Certificate • Employers Mutual Casualty Co. V. Northwest Mo. Masonry, Inc. , 06 -6023 -CV-SJ-NKL, 2008 is an example of a case where the court enforced the insurer’s obligation to provide notice to the certificate holder based on the “endeavor to” language. This is rare. 3/19/2018 David S. Hershey© CPCU, CRM, CRIS, AMIM, ARM, MLIS 12
The BIG Change in The ACORD Certificate Falsehoods about the change in the Form: • “It is against the law to change the Cert” • “The new form DOES provide notification to the Additional Insured” • “We as the agent will notify the Certificate Holder” no obligation of the Agent to the CH • “The underwriter won’t do it” • “Requires approval from the Insurance Dept. ” 3/19/2018 David S. Hershey© CPCU, CRM, CRIS, AMIM, ARM, MLIS 13
The BIG Change in The ACORD Certificate Corrections to the previous statements: • It is a requirement of the law to produce an accurate certificate • Standard No. C provisions notify the Insured – not the Additional Insured or the Cert Holder • No privity of contract between Cert Holder and the Agent and therefore difficult to obtain coverage in the event of a failure to send 3/19/2018 David S. Hershey© CPCU, CRM, CRIS, AMIM, ARM, MLIS 14
The BIG Change in The ACORD Certificate Corrections to the previous statements: (cont) notification – agent is usually not authorized to extend coverage of the Insurer to a 3 rd party • Some underwriters will issue the endorsement and some will not, it is usually an educational process and depends on the particular office of the Insurer • Insurance departments do not care – 3/19/2018 David S. Hershey© CPCU, CRM, CRIS, AMIM, ARM, MLIS 15
The BIG Change in The ACORD Certificate 1) Who are these individuals? 2) What is their collective band name? 3) What famous drummer provided the inspiration for the name of the group? 3/19/2018 David S. Hershey© CPCU, CRM, CRIS, AMIM, ARM, MLIS 16
The BIG Change in The ACORD Certificate The Results Among Insurers • We have over 70 sample endorsements being used by various Insurers and their offices – an increase from zero – don’t forget about “upstream” requirements • Increasing effort from Insurers to exclude No. C to Cert Holders for non-payment • Facility / Pool Assignments • Significant Agent lack of knowledge 3/19/2018 David S. Hershey© CPCU, CRM, CRIS, AMIM, ARM, MLIS 17
The BIG Change in The ACORD Certificate Why the change? • History – Agents & Brokers traditionally issued certs on behalf of their customers and Insurers • The old process was a “phantom” No. C effort • Failure to notify the Cert Holder would result in a continuation of coverage for the Cert Holder and often at the expense of the Agent’s or Insurer’s E&O 3/19/2018 David S. Hershey© CPCU, CRM, CRIS, AMIM, ARM, MLIS 18
The BIG Change in The ACORD Certificate Example of Current Endorsements (ACORD 27) 3/19/2018 David S. Hershey© CPCU, CRM, CRIS, AMIM, ARM, MLIS 19
The BIG Change in The ACORD Certificate 3/19/2018 David S. Hershey© CPCU, CRM, CRIS, AMIM, ARM, MLIS 20
The BIG Change in The ACORD Certificate 3/19/2018 David S. Hershey© CPCU, CRM, CRIS, AMIM, ARM, MLIS 21
The BIG Change in The ACORD Certificate Provision made for Lenders “If the lender holds a mortgage on the property described in either ACORD 27 or ACORD 38, then the policy covering that property commits the insurer to notify the mortgage holdr named in the policy in the event of cancellation or nonrenewal. ” 3/19/2018 David S. Hershey© CPCU, CRM, CRIS, AMIM, ARM, MLIS 22
The BIG Change in The ACORD Certificate Example of Current Property Policy Commitment LENDERS LOSS PAYEE AND MORTGAGE HOLDER INTEREST AND OBLIGATIONS: 6. 10. 05. “If this Policy is cancelled at the request of the Insured or its agent, the coverage for the interest of the Lender or Mortgagee will terminate ten (10) days after the Company sends to the Lender or Mortgagee written notice of cancellation…” 3/19/2018 David S. Hershey© CPCU, CRM, CRIS, AMIM, ARM, MLIS 23
The BIG Change in The ACORD Certificate Summary • There are solutions for No. C requirement – Some limitations may exist for A/R placements • May require receding through pool facility to a carrier who will issue No. C to Cert Holder • May require pre-payment (although this in itself is not always reliable; audit a/p, insured request for cancellation • Key – most States do not regulate 3 rd party notice 3/19/2018 David S. Hershey© CPCU, CRM, CRIS, AMIM, ARM, MLIS 24
The BIG Change in The ACORD Certificate Summary (cont. ) • Build you own library of sample of endorsements offered by other Insurers • Stand firm – no compliance, no job assignment • Suggest Agent / Broker cancel & rewrite to an insurer that will provide No. C to 3 rd parties – pro-rata cancellation factor should apply 3/19/2018 David S. Hershey© CPCU, CRM, CRIS, AMIM, ARM, MLIS 25
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