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 – What’s New

The proper issuance of insurance certificates appears to be an issue that just will not go away.  I continue to receive calls and e-mails under the Free Legal Service Program that I run for the IIAG about this issue and in particular, requests made by certificate holders for specific language they want included in the Description of Operations box on the ACORD 25 form.

As many of my readers are probably aware, the Insurance Commissioner’s Office has created a website devoted solely to explaining the requirements of the law on insurance certificates that was passed in 2011.  As pointed out in my blog post in April of this year, that website contained conflicting information about what could be put in the Description of Operations box of the ACORD 25 form.  That conflict has now been resolved.  A revised website recently went live.

After input from representatives of IIAG, the language of the website has been changed to make it clear that the prohibition against including a “summary of a policy provision,” the language of which “varies from the precise and complete language” of that provision applies to the Description of Operations box of the ACORD 25 form.  The list of improper actions with respect to the use and completion of an insurance certificate now includes a specific reference to what can be put in that box.  It is improper to include language that summarizes a policy provision in that box, as well as anywhere else on the certificate.  Instead, references to specific policy provisions or endorsements by “exact title, form number, and edition date” can be included in the Description of Operations box and copies of the documents referred to can be attached to the certificate.

The other major change made to the Insurance Commissioner’s insurance certificate website is the addition of a section that explains to whom the provisions of the insurance certificate law apply.  As readers of my blog already know, that law applies to certificate holders and those who request certificates, as well as to insureds, insurance agents, and insurance companies.  It also applies regardless of where any such persons may be physically located, if the property, operations, or risks to be covered by the insurance policy that is the subject of the certificate are located in Georgia.   Agents now have an authoritative source to which they can direct out-of-state contractors or others requesting insurance certificates for proof that the law applies to them.  Agents should also point out that the website refers to the fact that violations of that law can be punished by fines of up to $5,000.00.

The new website still has an e-mail link that can be used to report suspected violations of the law and an explanation of the information needed to do so.  I urge my readers to make use of the e-mail link, as the Insurance Commissioner can’t take action against those persons who violate the law unless he knows about them.

Insurance Certificates – the Insurance Commissioner’s Latest Actions

In a post a couple of weeks ago, I told my readers to stay tuned for further developments from the Insurance Commissioner’s Office on the subject of what could and could not be included in the Description of Operations section of the ACORD form 25 Certificate of Liability Insurance.  IIAG had been in touch with that Office about some inconsistencies that had come to light between its latest guidance on that subject and the instructions for that ACORD form.   In particular, the statement that it was illegal to include in the Description of Operations section ”any information other than a brief explanation of the operations of the insured; this section is not to be used for describing the insurance policy.”

That statement no longer appears on the website portal created by the Insurance Commissioner’s Office to facilitate the reporting of suspected violations of the law and regulation on insurance certificates.  Instead, it has been replaced by the statement that it is improper to use “a form that certifies that insurance coverage complies with the provisions of the insured’s contract with the cert holder, rather than summarizing the policy (a certificate is a synopsis of coverage under a policy; it is not (sic) document stating that a policy complies with the contractual obligations of the insured to obtain specified insurance coverage).”  This new statement forbids the inclusion of any language on an insurance certificate that does not purport to be a summary of the provisions of the insurance policy or policies referred to in the certificate.

Apparently, it is now permissible to include in the Description of Operations section of the ACORD form 25 statements that summarize a policy’s provisions.  However, the earlier guidance that it is improper to require “that a summary of a policy provision be added to the certificate which varies from the precise and complete language of the provision” remains.  My interpretation of these two statements is that an agent cannot put language on an insurance certificate that is requested by a third party unless that language is the “precise and complete language of the provision” of the insurance policy in question.  However, an agent is free to put language on a certificate that summarizes the provisions of the insurance policy in question, if that language is the agent’s own language and otherwise complies with the instructions for the completion of the ACORD form 25.

In deciding how to summarize the provisions of the insurance policy in question, an agent needs to keep in mind that it is illegal to put on a certificate “any false or misleading information” or anything “that purports to affirmatively or negatively alter, amend, or extend the coverage provided by the policy of insurance to which the certificate makes reference.”  Therefore, any summary of the provisions of the insurance policy in question must be completely accurate.  I would recommend that agents who don’t want to have to worry about whether their summary of such provisions meets this standard to instead refer to the specific part of the insurance policy or an endorsement to it where the requested information can be found and either attach a copy of that part of the policy or the endorsement to the certificate or offer to provide a copy of those documents upon request.

 

 

Insurance Commissioner Makes It Official and Helpful Checklist

As has previously been reported in the IIAG newsletter, the requirement that the workers compensation Form WC-10 be notarized has been eliminated by the State Board of Worker’s Compensation and a new Form WC-10 adopted, effective on May 1, 2013. (Click here for my post on the problems presented by the notarization requirement.)  Today, the Insurance Commissioner issued a Bulletin acknowledging that fact and formally withdrawing its Bulletin from late 2012 in which the use of the new form with the notarization requirement was mandated.  The latest Bulletin states that either version of the Form WC-10 can be used and “should be recognized by the carriers at audit.” (Click here to see a copy of the Bulletin and a link to the new WC-10 form.) 

I recently came across a checklist for reducing worker’s compensation costs that has been developed by Integrity Insurance.  It’s a simple two page form that an agent could adapt for their own use in dealing with their existing or potential workers compensation customers.  Providing such customers with such a checklist can be a value added service for agents, especially since the form encourages the use of an independent insurance agent to assist the customer with evaluating the factors and implementing the suggested actions identified in the checklist.  (Click here for a copy of the checklist.) 

 

Insurance Certificates – New Regulation Adopted

The Office of the Insurance Commissioner has recently announced the adoption of a new regulation governing the issuance of insurance certificates. (Click here for a complete copy of the regulation.)  That regulation will be effective on May 22, 2013.  It essentially follows the provisions of the statute on insurance certificates that was adopted by the Georgia legislature in 2011, fleshing out some of its requirements, and imposes some new requirements on insurers regarding the procedures to be followed by their agents when issuing such certificates.

The new regulation specifies that only insurers may file a request with the Insurance Commissioner’s Office to approve a form insurance certificate and it permits the use of expired ACORD and ISO forms, as long as ACORD and ISO permit their use “during periods of transition.”  Of most importance for insurance agents are the new requirements imposed on insurers, the type of references that may be made in an insurance certificate to other contracts, and how agents may respond to requests for confirmation that the insurance policy in question satisfies a contractual requirement. 

The new regulation requires insurers to provide “written instructions” to their agents “clearly outlining the insurer’s procedures and each party’s responsibilities for issuing and servicing certificates” and requires these procedures to address three subjects:  (i) the issuance of a notice of cancellation to certificate holders who have the right to receive such notice under a statute or the underlying insurance policy, (ii) the retention of copies of all certificates issued by agents, and (iii) the monitoring of certificates that have been issued to ensure compliance with the insurer’s procedures and any applicable law or regulation.

The new regulation states that an insurance certificate may contain a reference to or contract number for a “construction or service contract for identification purposes only” and provides that this may include a “project number, project name, project description, or a general description of work to be performed.”  However, “nothing in the certificate can refer to any language or contents in the construction or service contracts.”

The new regulation specifically states that an insurer or agent can not be required to issue an opinion letter or other document in addition to or in lieu of an insurance certificate.  This clarifies the statutory language on this subject by establishing a bright line rule that agents can now refer to in the event they are asked to do something beyond the mere issuance of an insurance certificate.  When that something consists of a request that an agent state whether an insurance policy satisfies a particular contract provision,  the regulation states that an insurer or agent “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.” 

Finally, the new regulation limits the use of insurance certificates that contain only a statement that the certificate does not amend or otherwise change the provisions of the underlying insurance policy and does not also contain a statement that it is being provided only for informational purposes.  Such certificates must specify the purposes for which they can be used and can only be used for those purposes.  Examples of such purposes found in the regulation are “mortgagee requirements or lending transactions.”  Any person requiring or using such certificates for an improper purpose can be fined up to $5,000 by the Insurance Commissioner and an offending agent’s license could be suspended or revoked.

The New Workers Compensation Form: How Can It Be Notarized?

A recent call on the Free Legal Services Program that I operate for members of the Big I posed an interesting question.  What are the obligations of a notary public when asked to notarize the new Form WC-10 that became effective on January 1, 2013?  As many of my readers are probably aware, that form is used for the election or rejection of workers compensation coverage by officers of corporations, members of limited liability companies, sole proprietors, and partners of partnerships.  As of January 1, 2013, the execution of that form must be notarized.

My caller, who was also a notary, had been presented with a telefax copy of a signed form WC-10 by one of his customers and had been asked to notarize that document.  My gut reaction to whether that could be legally done was no, if for no other reason than the signature he was being asked to notarize was not an original one.  However, if the signature had been an original one would that have made a difference?  My research revealed that the Georgia code section on notary publics provides that a notary “shall confirm the identity of the document signer, oath taker, or affirmant based on personal knowledge or on satisfactory evidence.”  I also came across a Georgia Supreme Court decision that seemed to indicate that the person signing the document in question must appear in person before the notary.

My caller pointed out the practical difficulty of requiring every customer who signs the new form WC-10 to appear in person before him before he could notarize the form.  Requiring the customer to have the form notarized before returning it to him also had its practical difficulties.  But it appears to me that, to be safe, one of these two things should be done.  For those agents who are also notary publics or have one in your offices, the violation of the notary public law is a misdemeanor, which can be punished by up to a year in jail and/or a fine of up to $1,000.00.  It is also questionable whether the form WC-10 would be considered valid if it is not properly notarized, so the customer may also have the basis for an E&O claim.

I would like to hear from you about your experiences with the new form WC-10.  What are your customers asking you to do and how are you responding to their requests?  Post a comment and lets have a discussion.

Who Can Issue an Insurance Certificate?

I received a call on the IIAG Free Legal Service line (1-800-IIAG911) last week that posed an interesting question about insurance certificates.  Who can issue them?  The caller had been approached by some third-party vendors who offered to issue insurance certificates required for real estate closings in condominium complexes for which the caller had written the general property and casualty policy. 

The caller was interested in the proposal due to the significant time savings that would result if her agency did not have to issue insurance certificates every time there was a real estate closing in a complex for which the agency had written a policy.  I had never thought about this issue, but a review of the new law on insurance certificates lead me to conclude that only insurance companies or insurance agents could issue such certificates.  My conclusion was based on the definition of “Certificate of Insurance” contained in the law.  It is defined as “any document or instrument, no matter how titled or described, which is prepared or issued by an insurer or insurance producer as evidence of property or casualty insurance coverage.”  Since the law states that any “certificate of insurance” issued “in violation of this Code section shall be null and void and of no force and effect”, if the document in question was not issued by an insurer or insurance agent, it can not be a valid insurance certificate.

I have suggested to Gould Hagler, IIAG’s lobbyist, that this question should be addressed by the Insurance Commissioner in the new regulation regarding insurance certificates on which work is now being done.   I will keep you up to date on the progress of the regulation.  In the meantime, I am interested in any experience agents in Georgia may have had with third-party vendors offering to issue insurance certificates.  Please let me know what your experience has been.

Service Fees and Insurance Certificates

In speaking with Steve Manders of the Insurance Commissioner’s Office last week about insurance certificate issues, the subject of whether a fee could be charged by an agent for the issuance of such certificates came up.  Mr. Manders was of the opinion that since the issuance of insurance certificates was part of the normal servicing process for insurance policies, no separate fee for their issuance could be charged unless there was an applicable rate filing, rating plan, or rating system filed with and approved by the Commissioner that permitted the charging of such a fee.  At this time, he was not aware of any such approved filing. 

Mr. Manders was relying on the provision of the Georgia Insurance Code that prohibits charging anything more or less “for insurance” than the premium specified in the policy in question or in any rate filing, rating plan, or rating system filed with and approved by the Commissioner.  In his view, that provision prohibits the charging of anything in addition to such premium for services that are normally provided in connection with obtaining and servicing the insurance policy in question.   

Mr. Manders also informed me that a regulation regarding insurance certificates will soon be issued by the Commissioner’s Office.  In part, it will require the delivery of a copy of all issued insurance certificates to the insurance company that issued the underlying policy, so the company will know what has been issued to its insureds by its agents.  Stay tuned for further updates on this new regulation.

Commissioner Targets Insurance Fraud

At the annual convention of the Independent Insurance Agents of Georgia last weekend, Insurance Commissioner Ralph Hudgens announced that a major focus of his office has been and will continue to be insurance fraud.  Due to additional funding obtained last year, the Insurance Commissioner’s Office has hired 7 new investigators and 2 new attorneys for its Enforcement Division.  The commissioner described a sting operation that his office conducted in conjunction with a local Atlanta television station aimed at insurance fraud involving roofing contractors, which ended with the arrest of 5 contractors, as an example of his office’s increased focus on this criminal activity.

Commissioner Hudgens also encouraged those in attendance to report any instances of misconduct by agents that may come to their attention. He pledged that “something will be done” in response to any such reports, as well as those related to insurance fraud.