Insurance Certificates – Use of Additional Remarks Schedule

A couple of weeks ago I wrote a blog post on the legality of agents issuing opinion letters about the coverages provided by their insured’s insurance policies.  The next week, I received an email from a participant in the Free Legal Service Program that I run for the Independent Insurance Agents of Georgia asking me to take a look at the language on an Additional Remarks Schedule that another agency had been routinely adding to the certificates of insurance it issued.  That schedule contained language that purported to revise the “cancellation clause” of ACORD form 25.  It stated that the agency that issued that document would “provide a 30 day notice of cancellation to the certificate holder” if any of the policies described on the ACORD form 25 were “cancelled prior to the expiration dates thereof but only as required by written contract.”

The addition of the above language to an ACORD form 25 is bad for the agency in question on two levels.  First, it provides a basis for the certificate holder to sue the agency if it does not do what it states it will do.  That could very well happen if there is a cancellation for non-payment of premium or the premium has been financed or the agency fails to effectively monitor the cancellation notices it receives.  Depending on the situation, the damages for a violation of this self-imposed duty could be significant.

The agency may be counting on the condition added at the end, “but only as required by written contract’, to limit its exposure.  However, it is unclear what “written contract” is being referred to.  If the reference is to the policy of insurance described on the ACORD form 25, it is entirely possible that what is in that policy of insurance is not consistent with the rest of the language on the Additional Remarks Schedule.  That would expose the agency to disciplinary action by the Insurance Commissioner’s Office, as the insurance certificate statute and the regulations adopted by that Office prohibit the preparation or issuance of a certificate of insurance “that contains any false or misleading information.”  If the reference is to another separate contract between the agency and the certificate holder, that would be a violation of the prohibition on making reference in an insurance certificate to any contract other than the contract of insurance identified in the certificate.

The attempt to revise the “cancellation clause” of the ACORD form 25 also runs afoul of the section of the statute that states, “A certificate holder shall have a legal right to notice of cancellation, nonrenewal, or any material change, or any similar notice concerning a policy of insurance only if the person is named within the policy or any endorsement and the policy or endorsement requires notice to be provided. The terms and conditions of the notice, including the required timing of the notice, are governed by the policy of insurance and cannot be altered by a certificate of insurance.”  By attempting to specify what notice of cancellation will be provided regardless of what the insurance policy in question states, the agency has violated this statutory requirement and put “false or misleading information” on the certificate.

Finally, the addition of the language in question may also result in the certificate of insurance being rendered useless, as the statute states any certificate of insurance “prepared, issued, or requested in violation of this Code section shall be null and void and of no force and effect.”  Such an outcome would provide another basis for the certificate holder, as well as the insured, to sue the agency.

I realize the competitive pressure to do what a prospective certificate holder wants done is great. However, the risk assumed by the agency and the agent involved in the issuance of the above Additional Remarks Schedule is greater.  They may lose a customer if they don’t issue such a document, but they would be exposed to potentially significant liability and may find their licenses suspended or revoked if they do.

 

Brokerage Fees – Revisited

A recent Bulletin from the Insurance Commissioner’s Office has caused me to reconsider a blog post from almost five years ago.  In the Bulletin, the Insurance Commissioner reminded brokers who handle excess and surplus lines policies that they cannot collect sums for those policies in excess of the “premiums and charges for insurance specified by the insurer in the insurance policy.”  This prohibition is found in the Unfair Trade Practices section of the Georgia Insurance Code.  That section contains a specific reference to excess and surplus lines policies and states “the premiums and charges for insurance. . . shall not be in excess of or less than those specified in the policy.”

In my previous blog post, I concluded that a broker who had no contact with the insured and was acting purely as an intermediary between the insurance company and another insurance agency or agent could charge whatever they wanted for their services.  That conclusion is now open to question if such a broker’s services are considered to be part of the process of obtaining insurance coverage, and thus, covered by the phrase “premiums and charges for insurance” found in the above code section.

That clearly appears to be the Insurance Commissioner’s conclusion with respect to the services performed by excess and surplus lines brokers.   According to the above Bulletin, they can only receive whatever compensation is included within the “premium” or other “charge” specified in a surplus lines insurance policy.  In another section of Georgia’s Insurance Code, “premium” is defined broadly to include “any assessment or any membership, policy, survey, inspection, service, or similar fee or charge in consideration for an insurance contract.”  Such fees or charges for the broker’s services are routinely included in the amount charged by the insurer for a surplus lines policy.

However, in other types of policies such additional fees are not usually included as part of the “premium” that is to be paid for them.  If the Insurance Commissioner believes that the services provided by a broker who has no contact with the insured are part of the process of obtaining any type of insurance coverage, not just excess and surplus lines coverage, then such a broker cannot charge a fee for their services, except to the extent such a charge is included in the “premium” specified for the insurance coverage in question.  In the absence of anything about such a charge in the stated “premium”, the broker would be limited to sharing in the commissions payable for such coverage as compensation for their services.

Until there is clarification on this point from the Insurance Commissioner’s Office, to be safe, a person acting as a broker for any insurance coverage should not charge a separate fee for their services, unless provided for in the stated “premium” for the policy in question.  They should just receive a share of the commission paid for that policy.

Insurance Certificates and Opinion Letters

My last post about insurance certificates was almost two years ago.  At that time, the consensus seemed to be that issues regarding them were declining as all the interested parties became more familiar with Georgia’s law and regulations.  However, I learned from a recent participant in the Free Legal Service program that I run for members of the Independent Insurance Agents of Georgia that six years after they were enacted some people have still not gotten the message.

The agent contacted me about requests that he received “all the time” to provide a letter stating that his agency’s customer “has or can provide the required types and amounts of insurance coverage” specified in a contract to which the customer either was already or would become a party.  The agent was concerned that providing such a letter called for an opinion outside of the scope of his knowledge or duties and thus, could create a potential E&O exposure.  He was correct to be concerned about the potential liability exposure he would create by providing such a letter.  It could be the basis for a claim by the entity to which it was sent if what was said in the letter was not completely accurate.

Avoiding such a potential liability exposure is one reason not to send such a letter, but an even better reason is that it would be illegal to do so and could subject the agent to disciplinary action by the Insurance Commissioner’s Office.   O.C.G.A. Section 34-24-19.1, specifically prohibits anyone from preparing, issuing, or requesting “either in addition to or in lieu of a certificate of insurance, an opinion letter or other document or correspondence that is inconsistent with this Code section.” That law goes on to state that “No certificate of insurance shall contain references to contracts, including construction or service contracts, other than the referenced contract of insurance.”

This prohibition was clarified in the regulations subsequently issued by the Insurance Commissioner’s Office.  Those regulations prohibit the reference in an insurance certificate “to any language or contents in the construction or service contracts.” The only thing that can be referred to in the insurance certificate is “a reference or contract number from the construction or service contract for identification purposes only.” The regulations also flatly state that “Neither an insurer nor a producer shall be required to issue an opinion letter or other document in addition to or in lieu of a certificate of insurance.” Instead, “Insurers and producers may provide the certificate holder with the certificate and an actual copy of the policy, insurance binder or relevant policy provision to demonstrate contractual compliance.”

If an agent can’t refer to contracts other than contracts of insurance in an insurance certificate, then as the regulations make clear, an agent can’t refer to other contracts in an opinion letter or other document that is requested by the certificate holder or anyone else.  If the person requesting such a letter insists on it being provided, the agent should point out to that person that the above law prohibits requesting such a letter or other document, as well as providing it, and that a fine of up to $5,000 can be imposed for its violation.