Frequently Asked Questions
Rental Car Coverage - Texas Personal Auto Policy
Should I purchase the Loss Damage Waiver offered by the rental agent when I rent a vehicle?
Personal Injury and Medical Payments – Personal Auto Policy
If I have health insurance, why do I need Personal Injury Protection or Medical Payments coverage on my auto policy?
Credit Rating – Homeowners and Personal Auto Policies
Why does my credit rating affect how much my insurance costs?
Insurance to Value – Homeowners and Dwelling Policies
How much insurance do I need on my home?
Whose Job Is It to Determine the Proper Amount of Insurance?
Replacement Cost – Homeowners and Dwelling Policies
Why do I have to carry so much insurance on my home?
Premium – Homeowners Policy
Why is my neighbor’s homeowners insurance premium less than mine?
Rental Car Coverage - Business Auto Policy
Should I purchase the Loss Damage Waiver offered by the rental agent when I rent a vehicle while on company business, and instruct my employees to do the same?
Coinsurance – Commercial Property Policy
Why do I have to carry so much insurance on my property?
Experience Modifiers – Workers’ Compensation Policy
What is an experience modifier, how is it computed and how does it affect my premium?
Certificates of Insurance
You Can’t Always Get What You Want - by David Surles, CPCU, AAI
Should I purchase the Loss Damage Waiver offered by the rental agent when I rent a vehicle?
This is a great question, and one that our customers ask frequently. Whether you rent a vehicle for personal use while on vacation, or as a substitute while your vehicle is out of commission for repair or service, or for business use while out of town, there comes that time when you’re standing at the rental car counter and the agent asks the inevitable question: “Do you want to buy our loss damage waiver (or our insurance coverage)?”
Most loss damage waiver (LDW) fees are outrageous. Sometimes they cost more than the daily rental fee itself. But are they worth the additional cost? The answer may depend on your tolerance for risk and inconvenience. You must decide if the extra cost is reasonable, considering the potential for an uninsured loss should something happen to the vehicle during the term of the rental contract, and the resulting inconvenience of dealing with the rental company and your insurance company to satisfy the rental company’s demands.
First, you should know that the LDW is not actually an insurance policy. It is a waiver of the rental company’s requirement in the rental contract that you bring the vehicle back in the same condition as when it left their lot. Most rental contracts make you responsible for any damage to the vehicle, including theft and weather-related damage. When you purchase the LDW, the rental company is removing that provision from the contract on a conditional basis.
If you don’t purchase the LDW and the vehicle is damaged, here are some of the costs for which you could be held responsible under the rental contract:
- Cost to repair damage to the vehicle, or the full value of the vehicle if it is a total loss
- “Diminished value” of the vehicle – the difference between what the vehicle was worth before the accident and what it is worth after repairs have been made
- “Loss of use” – the amount of money the rental company loses on rental fees while the vehicle is out of service for repair or replacement
- Administrative or loss-related expenses incurred by the rental company, such as fees for towing, appraisal, and claims adjustment, plus general office expenses for handling the paperwork
Whether all or any of these costs are covered by your personal auto policy depends on several factors.
Reasons to purchase the Loss Damage Waiver:
- Your limit of liability may not be sufficient to satisfy the rental company’s demands.
Coverage for damage to the rental car and related costs are provided by the property damage liability section of your personal auto policy. If the property damage limit of liability is not sufficient to cover the value of the vehicle you rent, plus pay for any other costs the rental company demands, you will be personally responsible for the costs that exceed what your insurance company has to pay.
- Your policy may exclude rented pickups and vans used for business purposes.
If you rent a pickup or van for business purposes, your personal auto policy may not provide coverage at all. Some insurance companies consider an SUV to be a pickup or van, and may therefore not cover any damages arising out of the use of an SUV rented for business purposes.
- Your premium may go up or your policy may not be renewed if you have an at-fault accident.
You are driving an unfamiliar vehicle in unfamiliar territory. If you have an at-fault accident while driving the rented vehicle, your insurance company may hold it against you – with a premium surcharge or perhaps even non-renewal.
- Your line of credit may be adversely affected.
If you don’t buy the LDW, the rental company will probably ring up an estimated damage amount on your credit card, pending notification to and settlement by your insurance company.
- You may suffer a huge inconvenience.
When you have purchased the LDW, you can bring a damaged vehicle back to the rental company, throw the keys on the counter, and walk away. When you haven’t purchased the LDW, you may have to spend a significant amount of time dealing with the rental company and your insurance company.
Bottom Line
We recommend that you buy the Loss Damage Waiver from the rental company.
If I have health insurance, why do I need Personal Injury Protection or Medical Payments coverage on my auto policy?
This is a great question, and one that our customers ask frequently.
Personal Injury Protection (PIP) coverage provides payment for medical bills, funeral expenses, lost wages or replacement services (for homemakers) if you or a member of your family are injured in an auto accident. This coverage also applies to passengers in your vehicle, who may or may not have health insurance.
It's a broad "no-fault" coverage that will pay, even if others pay, allowing in some cases to double-dip for expenses. It has very few exclusions.
Medical Payments coverage is like PIP in that it reimburses covered persons for their medical expenses up to the policy limit. But that’s where the similarities stop. Medical Payments coverage does nothing to reimburse the injured person for lost wages or replacement services. And, unlike PIP, it coordinates with insurance that may be provided by another auto policy or coverage, thus preventing double dipping.
Either coverage can be used to cover deductibles and co-pays under a health insurance plan.
Why does my credit rating affect how much my insurance costs?
This is a great question, and one that our customers ask frequently.
There have been a number of studies in Texas and other states that have shown a direct relationship between credit and claims. The state of Texas allows credit as a rating factor because the impact of credit can be proven like other factors including prior claims, driving experience or the age of a home.
For example, we know that more young drivers will have accidents than experienced drivers. Even though not every young driver will have an accident, they all pay more for insurance. And everyone else pays less. The same is true when credit ratings are used to develop premium for auto and homeowners policies. Those with good credit ratings typically pay less for their policies.
How much insurance do I need on my home?
This is a great question, and one that our customers ask frequently.
You should have an amount of insurance that is sufficient to rebuild your home in the event it is totally destroyed by a fire, tornado, hurricane or other insured catastrophe.
It’s estimated that about 60 percent of American homes are underinsured by an average of 22 percent, according to a company that provides building-cost data to the insurance industry.
Your home is probably your largest single investment, so insuring it adequately is an important part of maintaining your financial independence.
The amount of insurance should cover the cost of rebuilding your home at current construction costs, not including the value of the land. Don’t think about the price you paid for your home or the appraised value. The cost of rebuilding could be more or less than the price you paid or could sell it for today.
Besides the cost of materials and labor you normally consider when thinking about building a home, there are other considerations such as
- The expense of clearing debris from the lot before rebuilding can begin
- Fees for an architect or other design professional to estimate costs and produce plans to be followed by the contractor
- Rapid inflation in the cost of building materials and labor following a major catastrophe that affects a number of homes in the same area
- Local building codes that require replacement with additional features or more expensive materials
Debris Removal
When rebuilding a home after a loss, you can’t start the process until the lot has been cleared of the debris. This is an additional expense you wouldn’t incur if you were building a home from scratch. All insurance policies pay for this expense, but some pay more than others.
Some policies pay debris removal expenses in full, but the payments reduce the amount of insurance available to replace the home. Other policies provide an additional limit for debris removal expenses on top of the amount available to replace the home, usually 5 percent or more of the limit of insurance shown on the policy for your home.
Extended Replacement Cost Coverage
After a major hurricane or a tornado, building materials and construction workers are often in great demand. This can push rebuilding costs above homeowners policy limits, leaving you without enough money to cover the bill. To protect against such a situation, you can buy a policy that pays more than the policy limits.
An extended replacement cost policy will pay an additional amount – up to 20 percent or more – above the limits, depending on the insurance company. A guaranteed replacement cost policy will pay whatever it costs to rebuild your home as it was before the fire or other disaster.
Not all insurers offer these features, so be sure to ask us to find an insurance company that does offer them if this exposure is important to you.
Building codes
Local building codes are updated periodically and may have changed significantly since your home was built. If your home is badly damaged, the building officials in your community may require you to rebuild it to meet new building codes. Some communities require you to demolish undamaged parts of the home if they determine the damage exceeds a certain percentage of its value.
Most insurance policies include the extra expense of rebuilding to code, up to a certain dollar amount like $5,000 or a certain percentage of the limit like 10 percent. But the amount provided generally does not increase the limit of insurance. Most insurance companies offer an additional limit for building code coverage for an additional premium.
To fully cover the additional costs related to required building code enforcement, you must add the necessary amount to the limit of insurance or purchase additional coverage if offered by the insurance company.
Whose Job Is It to Determine the Proper Amount of Insurance?
Ultimately it is your responsibility to establish the value of your property and select the amount of insurance for your policy. We can help with that decision and explain what you can do to avoid an unpleasant surprise after a loss.
Help Is Available
There are several resources available to help you determine an appropriate amount of insurance on your home. Remember: Home values and rebuilding costs change all the time, so it’s a good idea to do this annually when your policy renews.
- Obtain a real estate appraisal from a qualified professional.
Unfortunately, the cost of such an appraisal may be prohibitive, but some insurance companies who specialize in writing higher-valued homes pay for such appraisals as a service to their policyholders.
- Use the insurance company’s replacement cost estimator.
Almost all major insurers offer this service. It is an automated program provided by a leading aggregator of building cost data (such as Marshall & Swift (www.marshallswift.com). You provide information on your home – such as square footage, type of construction and special features – to input into the computer program. Some insurance companies will provide “guaranteed replacement cost” coverage if you agree to purchase the limit of insurance recommended by the replacement cost estimator.
- Use your own replacement cost estimator.
For example, AccuCoverage by Marshall & Swift (www.accucoverage.com) will provide a real-time estimate based on the information you submit on their website for a fee of $7.95 charged to your credit card.
- Talk to a local home builder.
But keep in mind that they are usually building new homes from “scratch.” The cost per square foot for new construction is generally less the cost to rebuild. Ask the builder what a typical cost per square foot is for remodeling or adding a room to home – that’s generally closer to the actual cost of rebuilding a damaged home.
Why do I have to carry so much insurance on my home?
This is a great question, and one that our customers ask frequently.
For one thing, we believe you should have an amount of insurance that is sufficient to rebuild your home – probably your largest investment – in the event it is totally destroyed by a fire or tornado.
In addition, your policy contains what is called an insurance-to-value provision. This is essentially an agreement between you and the insurance company. In exchange for your agreement to insure your home for at least a specified percentage of its replacement value, the company agrees to issue the policy for a lower premium than it would charge for a policy without this provision. After a loss – even a small loss – if the amount of insurance on your home isn’t sufficient to satisfy your part of the agreement, then the insurance company can reduce the amount it would normally pay.
While it is your responsibility to establish the value of your property and select the amount of insurance for your policy, we can help with that decision and explain what you can do to avoid a loss penalty.
Why is my neighbor’s homeowners insurance premium less than mine?
Homeowners policies are like cars. There are different types with different options. And all of those options affect the premium. Your neighbor may have chosen a higher deductible, or chosen to buy a policy that does not provide as much coverage, or chosen to buy a lower amount of insurance.
There are other factors that affect the premium as well. Without reviewing your neighbor's policy it is hard to tell whether they purchased a “Chevrolet” or a “Cadillac”.
Should I purchase the Loss Damage Waiver offered by the rental agent when I rent a vehicle while on company business, and instruct my employees to do the same?
This is a great question, and one that our customers ask frequently. When you or one of your employees rent a vehicle for business use while out of town, there comes that time when you’re standing at the rental car counter and the agent asks the inevitable question: “Do you want to buy our loss damage waiver (or our insurance coverage)?”
Most loss damage waiver (LDW) fees are outrageous. Sometimes they cost more than the daily rental fee itself. But are they worth the additional cost? The answer may depend on your tolerance for risk and inconvenience. You must decide if the extra cost is reasonable, considering the potential for an uninsured loss should something happen to the vehicle during the term of the rental contract, and the resulting inconvenience of dealing with the rental company and your insurance company – or perhaps even your employee’s insurance company – to satisfy the rental company’s demands.
First, you should know that the LDW is not actually an insurance policy. It is a waiver of the rental company’s requirement in the rental contract that the renter bring the vehicle back in the same condition as when it left their lot. Most rental contracts make the renter responsible for any damage to the vehicle, including theft and weather-related damage. When the renter purchases the LDW, the rental company is removing that provision from the contract on a conditional basis.
If you don’t purchase the LDW and the vehicle is damaged, here are some of the costs for which you or your employee could be held responsible under the rental contract:
- Cost to repair damage to the vehicle, or the full value of the vehicle if it is a total loss
- “Diminished value” of the vehicle – the difference between what the vehicle was worth before the accident and what it is worth after repairs have been made
- “Loss of use” – the amount of money the rental company loses on rental fees while the vehicle is out of service for repair or replacement
- Administrative or loss-related expenses incurred by the rental company, such as fees for towing, appraisal, and claims adjustment, plus general office expenses for handling the paperwork
Reasons to purchase the Loss Damage Waiver:
1. Your policy may not cover damage to the rental vehicle at all.
Your policy does not cover damage to the rented vehicle and related costs, UNLESS the policy has been changed to cover vehicles rented by you or your employees on company business (the “Employee Hired Autos” endorsement), and you have purchased special coverage (“hired auto physical damage” ). (Note: not all insurers offer these coverages.)
2. Your insurance company may not pay the entire amount demanded by the rental company.
When your policy covers damage to a rented vehicle, the amount payable by the insurance company is the lesser of the “actual cash value” of the vehicle or the amount “necessary” to repair or replace the vehicle, minus the same deductible that would apply if the damage was to one of your own vehicles. In addition, some policies cover “loss of use” with a daily limit (usually as low as $20 per day) and a maximum limit (usually $600). Because of all these limitations, you or your employee may become personally responsible for:
- The amount demanded by the rental company to repair or replace the vehicle in excess of “actual cash value” or the amount “necessary” to repair or replace;
- The amount of your deductible;
- The amount demanded by the rental company for “loss of use” in excess of the daily and maximum limits payable by your insurance company, if the company offers this coverage at all;
- The amount demanded by the rental company for “diminished value” of the vehicle, even after the repairs are complete;
- The amount demanded by the rental company for administrative or other loss-related expenses.
3. Your policy may exclude some electronic equipment.
Your policy may exclude loss to some electronic equipment that receives or transmits audio, visual or data signals. If you rent a vehicle equipped with a GPS receiver, for example, your policy may not cover it.
4. Your premium may go up or your policy may not be renewed.
You or your employee are driving an unfamiliar vehicle in unfamiliar territory. If you or your employee has an accident while driving a rented vehicle, and your insurance company pays the claim, it may hold this fact against you – with a premium surcharge or perhaps even non-renewal.
5. Your or your employee’s line of credit may be adversely affected.
If you don’t buy the LDW, the rental company will probably ring up an estimated damage amount on your credit card or your employee’s credit card, pending settlement by the insurance company.
6. You or your employee may suffer a huge inconvenience.
When you purchase the LDW, you or the employee can bring a damaged vehicle back to the rental company, throw the keys on the counter, and walk away. When you haven’t purchased the LDW, you or your employee may have to spend a significant amount of time dealing with the rental company and your insurance company, and perhaps the employee’s insurance company, as well.
7. Your personal auto policy (if you have one) or your employee’s personal auto policy may be affected.
Most personal auto policies cover accidents involving vehicles rented by you or your employee, even when the rental is solely for business purposes. When you purchase the LDW, the personal auto policy won’t be needed to pay for damage to the rented auto. (Note: If the accident is your fault or your employee’s fault, the personal auto policy may become involved if the accident involves injury to other persons or damage to other property. There is nothing you can do to avoid this.) For more information on how the personal auto policy responds to accidents involving rented vehicles, ask us for a copy of an article on that subject.
Bottom Line: We recommend that you buy the Loss Damage Waiver from the rental company.
Recommended Guidelines for Employers
Here are some guidelines for you to consider if employees rent vehicles for company business:
- Instruct employees to include the company name, if possible, on the rental agreement.
- If you have no tolerance for the risk of incurring the potential uninsured losses shown above, or the means to pay those losses, tell employees to purchase the LDW offered by the rental company.
- Tell employees to report any accident in a rented vehicle to you and to their own personal auto policy insurer or agent
Why do I have to carry so much insurance on my property?
This is a great question, and one that our customers ask frequently.
Your policy contains what is called a coinsurance provision. Coinsurance is essentially an agreement between you and the insurance company. In exchange for your agreement to insure the property for at least a specified percentage of its actual value, the company agrees to issue the policy for a lower premium than it would charge for a policy without a coinsurance provision. After a loss – even a small loss – if the amount of insurance on your property isn’t sufficient to satisfy your part of the agreement, then the insurance company can reduce the amount it would normally pay.
While it is your responsibility to establish the value of your property and select the amount of insurance for your policy, we can help with that decision and explain what you can do to avoid a loss penalty.
What is an experience modifier, how is it computed and how does it affect my premium?
This is a great question, and one that our customers ask frequently. The experience rating modifier is the one area where an employer’s efforts can significantly reduce premium cost.
Experience rating is the interaction of claims management and insurance pricing. An organization that controls its losses also controls its experience modifier and ultimately is responsible for higher or lower premiums. Although the formula is quite complicated, an understanding of the basic components will assist you in minimizing the impact of losses.
The experience modification formula considers losses for a three-year period, excluding the current policy period. The “losses” are more than just the amount that has been actually paid out on a claim. They are the “incurred” losses, which also include the reserves that an insurance company adjuster has estimated the loss will pay out in the future, either in direct medical treatment or as indemnity payments to the injured worker while he or she is unable to return to work.
As an example, let’s consider that an experience modifier for a risk is being calculated during 2006 for a policy that will be written effective Jan. 1, 2007. Since the 2006 policy is not yet closed (expired), the loss data is not available. This one-year lag period allows the insurance company the time to close most claims and more accurately estimate the cost of the open claims that will continue for more than one year. The three years that the experience modification calculation is based on are the years that began in January 2003, January 2004 and January 2005.
In its simplest form, the experience rating calculation compares the actual losses for the individual employer with the expected losses for the average employer in the same industry and same state with the same amount of payroll.
An experience modifier of 1.00 represents an employer whose actual losses closely matched the expected losses for their business. If the actual losses were greater than the expected losses, the experience modifier would be greater than 1.00; conversely a modifier less than 1.00 means that actual losses were less than expected.
Since no two employers in the same industry will have the same claims histories, the experience modifier calculation is designed so that the employer with the greater claims pays more for workers’ compensation. Through this system, employers have a financial incentive to improve the safety of the workplace. The chart below shows the significant impact that the experience modifier has on the actual premium an employer pays for insurance:
|
Manual Premium
|
Exp Mod
|
Discount/Surcharge
|
Modified Premium
|
|
$62,106
|
.73
|
$16,769 Discount
|
$45,337
|
|
$62,106
|
1.00
|
No Impact
|
$62,106
|
|
$62,106
|
1.43
|
$26,706 Surcharge
|
$88,812
|
The last aspect of the experience rating modifier that impacts the calculation is the frequency of claims. The formula places a higher penalty on an employer who has 10 injuries costing $5,000 each versus an employer who has one injury costing $50,000. Although the ultimate expense may be the same, the employer with one claim is considered a much better risk. A history of frequent losses normally implies there are poor safety standards in place and little management commitment to improving safety. In Texas, as in most states, large claims are “capped” so that the amount that exceeds the cap is not counted at all in the calculation. The current cap in Texas is $107,000. This capping process reduces the penalty to the employer when there are “shock” losses.
The examples below show the impact of losses on the experience modification calculation as well as the impact of frequency versus severity in the calculation.
|
Example #1
Hypothetical Account
|
|
Claims History
|
|
Claims
|
Policy Yr
|
Actual
|
Primary
|
|
|
Under
$2000
|
01
|
5,660
|
5,660
|
|
|
Under
$2000
|
02
|
5,303
|
5,303
|
|
|
Under
$2000
|
03
|
3,018
|
3,018
|
|
|
#51261701
|
01
|
3,267
|
3,267
|
Lost Time Claim
|
|
BJM3976
|
03
|
72,848
|
5,000
|
Lost Time Claim
|
|
BJM9986
|
03
|
4,708
|
4,708
|
Lost Time Claim
|
|
|
|
94,804
|
26,956
|
|
|
Premium Calculation
|
|
|
Class
Code
|
3628
|
8742
|
8810
|
Mod
|
Adj Prem
|
|
|
Est
Payroll
|
1,000,000
|
100,000
|
1,400,000
|
|
|
|
|
Divide/100
|
10,000
|
1,000
|
14,000
|
|
|
|
|
Prem
Rate
|
3.50
|
0.75
|
0.36
|
|
|
|
|
Premium
|
35,000
|
750
|
5,040
|
|
|
|
|
|
|
|
40,790
|
1.275
|
52,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Example #2 - What
IF there had been no Lost Time Claims?
|
|
|
Premium
|
Mod
|
Adj Prem
|
|
Example #1
|
40,790
|
1.275
|
52,007
|
|
Example #2
|
40,790
|
.80
|
32,632
|
|
Example
#3 - What IF instead of three lost-time injuries, there was only one but the
total loss was the same?
|
|
|
|
|
Premium
|
Mod
|
Adj
Prem
|
|
|
Example
#1
|
40,790
|
1.275
|
52,007
|
|
|
Example
#2
|
40,790
|
.80
|
32,632
|
|
|
Example
#3
|
40,790
|
1.120
|
45,684
|
|
Remember, experience modifiers are not arbitrary numbers assigned by the insurance carrier; they are calculations based on the employer’s actual losses. You can reward yourself and your business by implementing safety programs that will reduce losses.
This article was prepared and made available to your agent by the Independent Insurance Agents of Texas, which is solely responsible for its content. Please read your insurance policy. If there is any conflict between the information in this article and the actual terms and conditions of your policy, the terms and conditions of your policy will apply. The Independent Insurance Agents of Texas is a non-profit association of more than 1,500 insurance agencies in Texas, dedicated to helping its members succeed, in part by providing technical resources that explain insurance policies sold to their customers.
Certificates of Insurance. You Can’t Always Get What You Want by David Surles, CPCU, AAI
A certificate of insurance is an informational document issued by or on behalf of an insurance company. The certificate indicates that an insurance policy exists of a certain type and limits. Certificates are simply snapshots of basic policy coverages and limits at the time of issuance of the certificate. Certificates are not intended to modify coverages or change the terms of the insurance contract and they convey no contractual rights to the certificate holder.
The futility of depending on certificates of insurance was highlighted by the Texas Supreme Court in its recent decision in Via Net, et al v. TIG Insurance Company, et al., wherein the Court said: “Given the numerous limitations and exclusions that often encumber such policies, those who take such certificates at face value do so at their own risk.”
As a utility contractor, you are no doubt often asked to sign construction or service contracts that include certain insurance requirements that must be evidenced by a certificate of insurance. If the certificate holder desires status as an additional insured under a policy, this can only be done by endorsement to the policy, not by issuance of the certificate alone.
Problems often arise when a contract makes demands that are, for all practical purposes, virtually impossible to meet. Examples include requests for insurance for losses or damages that are uninsurable, requests that agents cannot legally comply with, requests that require inappropriate certificate wording, and requests that are impractical from a market standpoint.
As a result, insurance agents are sometimes asked to provide a certificate of insurance that cannot comply with the contract you may have already signed. In fact, you may have already completed the job and need the certificate in order to get paid. The purpose of this article is to illustrate how such problems can arise and what solutions are available, if any, to address the most common problems.
UNINSURABLE REQUESTS
Sometimes contracts will attempt to transfer risks and liabilities that are largely uninsurable. For example, the contract may require you to be responsible for "ANY negligent acts, errors or omissions" or "any and all liabilities" that result in "ANY claim, cost, expense, liability, penalty, or fine." A commercial general liability (CGL) policy typically does not cover "errors and omissions" or fines and penalties, nor will it pay for damages other than those arising from bodily injury, property damage, and personal and advertising injury liability. In addition, the word "any" implies there are no exclusions when, in fact, the policy has many exclusions ranging from pollution liability to faulty workmanship.
Needless to say, it is advisable to have an attorney review contracts on your behalf. In addition, prior to signing any contract, have your insurance agent review the insurance specifications, preferably in conjunction with your attorney. He or she can advise what requirements may be impossible or difficult to insure. It is important to know the costs before bidding on the contract and it's possible that truly onerous insurance requirements can be deleted from the contract.
Often contracts will require your insurance to be "primary and noncontributory." The "ISO standard" CGL policy does say that it is primary with regard to the certificate holder's general liability policy IF the certificate holder is an additional insured on your policy. So, the first order of business is to make sure that the appropriate additional insured endorsement is attached to your CGL policy.
However, the undefined term "noncontributory" is meaningless on its own. The term may just be used to reemphasize that your insurance is primary, which is fine. Or the intended meaning may be that a waiver of subrogation endorsement is desired. However, often it means that the certificate holder's CGL policy will not contribute in any way to a loss even if that policy otherwise covers it. This means that you will have to pay out of your own pocket any claim that exceeds the limit of your CGL policy without contribution from the certificate holder's CGL policy.
It is in your best interest to attempt to clarify and, if necessary, strike the "noncontributory" wording from the contract. If that's impossible, consider increasing your own policy limits or be prepared to assume a potentially large uninsured loss.
ILLEGAL REQUESTS
Construction contracts sometimes require that the certificate holder be given additional insured status under a specific endorsement number and edition date. It is not uncommon for a contract to request an "ISO standard" policy form such as the CG 20 10 11 85 additional insured endorsement. Note that "11 85" refers to the November 1985 edition of this form. These forms typically must be filed with and approved by the Texas Department of Insurance before they can be used. Since later editions may have superseded earlier editions, it could be impossible for the insurer to provide a form that is 20+ years old and is no longer approved by the Texas Department of Insurance. This is also the case in most other states where you might be working.
Your insurance agent can often provide a later edition form with comparable coverage. In some cases, two endorsements might be necessary to replace a single older form, one providing ongoing operations coverage and the other completed operations coverage.
The latter form, however, might not be available or only available at significant cost. Your insurance agent may represent more than one insurance company, making it more likely that your account can be shopped to another insurer who is better able to meet your needs. In any event, you will want to price this coverage before submitting your bid since completed operations insurance, if available, can be substantial in price.
Also, contracts frequently mandate that coverage be extended to the additional insured's sole negligence. In some states, sole negligence cannot legally be transferred to another party. Increasingly, even where insurance transfer is permitted, insurers are using additional insured endorsements that prohibit assuming the additional insured's sole negligence. The current “ISO standard” endorsements do just that.
If you are working in a state that has anti-indemnity statutes or case law, then this should not be an issue. Otherwise, you will want your insurance agent to determine if the insurer is still willing to assume sole negligence under an additional insured endorsement. If not, the contract will need to be modified or compliance will be impossible.
INAPPROPRIATE REQUESTS
Contracts often specify that the certificate of insurance provide for notice of cancellation to the certificate holder. The problem is that all "ISO standard" additional insured endorsements make no provision for cancellation notice to an additional insured. Perhaps acknowledging this, some contracts settle for the more hopeful "endeavor to" provide notice of cancellation provision.
Keep in mind that, unless the policy specifically provides for cancellation notice to the additional insured, the insurer is usually under no contractual obligation to provide such notice. Even if an attempt is voluntarily made, mistakes happen. In some cases, due to regulatory decree by the state department of insurance (New York is an example), a certificate of insurance cannot make a promise of notification unless notice of cancellation is provided for in the policy or endorsement.
Some organizations and government entities use their own certificates of insurance instead of the more standardized ACORD 25 - Certificate of Liability Insurance form. These may create problems for insurance agents because some states have laws or regulations prohibiting the use of such forms unless approved by the state department of insurance.
These forms may include wording implying coverages or rights that don't actually exist under the policy, again violating the law in many states. These certificates may sometimes be almost exact duplicates of the "ACORD standard" form(s), creating copyright violation possibilities. They may also lack disclaimers designed to protect you and the issuer.
Be very wary of these non-ACORD certificates of insurance. Rely on your insurance agent for guidance on how to handle these forms. In many cases, they can be issued, but require referral to the insurance company which can cause delays. Again, it is important to involve your insurance agent in the process as soon as possible.
IMPRACTICAL REQUESTS
The construction contract may specify that certain coverages (e.g., completed operations) be provided or that certain exclusions (e.g., pollution liability) be removed. Because of the proliferation of defective workmanship claims in the construction industry, completed operations coverage may be difficult to procure at a reasonable cost. Most insurers are unwilling to remove certain exclusions such as pollution liability and the cost to purchase the coverage separately may be prohibitive.
Be sure to give your insurance agent ample time to search for the coverages required by your construction contracts. If coverage is available, you will want to include the premium costs in your contract bid. If coverages are not available, you may be able to negotiate such requirements from the contract or pursue another source of coverage.
It is not uncommon for your insurance agent to be unable to meet every requirement of the contract you're being asked to sign, from the standpoint of coverages, policy rights, or completion of a certificate of insurance. The other party to the contract may then inform you that they can provide a list of agents who claim they can comply with the contractual requirements in full.
While it's possible that the person requesting the certificate is aware of agents who are better able to comply with their requests, be cognizant that fraud and misrepresentation with regard to certificates is not unheard of. If you are requiring certificates from subcontractors, be aware that bogus certificates do exist.
While it is rare, there are unfortunately some insurance agents who will issue certificates that do not accurately reflect coverages and policy terms just to allow a contractor to get a job and for them to keep their business. Since certificates are rarely legally enforceable against insurers or agents, you may be incurring significant liability if an inaccurate certificate is issued. It is important that you do business with insurance professionals in which you have great trust or that you verify the accuracy of the certificate.
As outlined in this discussion, the single best thing you can do in dealing with certificate of insurance requirements is to involve your insurance agent in the process as soon as possible. He or she can counsel you on how to best meet your insurance requirements and, if not possible in some instances, provide an explanation as to why something is difficult or impossible, often to the satisfaction of the requestor.
David Surles, CPCU, AAI is the Director of Professional Liability for the Independent Insurance Agents of Texas (IIAT), representing a network of more than 1,600 independent insurance agencies in Texas, and affiliated with the Independent Insurance Agents & Brokers of America (IIABA). This article was condensed from an IIABA white paper entitled “Certificates of Insurance: Issues and Answers.” To obtain a copy of this report, contact an independent agency member of IIAT.
(Copyright 2007 by the Independent Insurance Agents of Texas. All rights reserved)
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