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Certificates of Insurance: Why You Can’t Always Have It Your Way

PNN_1604Design professionals are often asked by their clients to sign contracts that include comprehensive—sometimes unreasonable—insurance requirements and indemnification terms.  These are usually drafted with the goal of protecting owners, clients, contractors, or other project participants.  But how does this work when the required coverages aren’t found in the commercial insurance marketplace?

Certificates of insurance (COIs)—which are also often requested in those professional service contracts—provide summaries or verification of current coverage, including policy effective dates, insurers, and certain policy limits.  A certificate gives a snapshot to the requestor (usually known as the certificate holder) for informational purposes.   It’s important to understand that in no way does a certificate endorse, amend, alter, or extend coverage; nor does it act as a contract.  Certificates are often provided using a set of industry standard forms produced by ACORD (formally known as the Association for Cooperative Operations Research and Development), which indicate:

THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS ON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AMEND, EXTEND OR ALTER THE COVERAGE REPORTED BY THE POLICIES DESCRIBED BELOW.

Issuers of COIs generally strive to accurately reflect the insurance policies that are in effect, but those who are relying on the forms need to keep in mind that it’s virtually impossible to summarize an insurance policy of over a hundred pages in a form that contains a few boxes.  Adding to this, those who are issuing insurance certificates often struggle as they try to confirm in a COI that specific and detailed contractual requirements are—or aren’t—being met.

One common challenge is meeting a request that an insurer provide notice of a policy’s cancellation to the insured’s clients.  To do so, the insurer would need to track all such requirements for all insureds for the duration of each contractual requirement—which may even be unspecified.  With this in mind, ACORD made changes in 2010 to clarify that insurers’ notification duties are as defined in the insurance policy, not in the professional services contract.

Generally, courts agree that a certificate of insurance is not a contract.  One fundamental reason is that no consideration—or payment—is given by the certificate holder to the issuer.  However, there is a duty to make accurate representations within the confines of the overall system.  To consider this, we’ll review a few recent cases interpreting the obligations for COIs and their issuers.

Case 1: Premier Health Partners v. NBBJ, L.L.C. 2015-Ohio-128

When certificates of insurance are issued, whose obligation is it to consider all policy exclusions and contract definitions that directly impact the scope of services being performed?  If we start with the premise that a COI is solely intended to confirm—but not change—coverage, then is it enough to simply review the insurance sections of a contract prior to issuance?  Consider the findings of an Ohio court in January 2015. 

Architect NBBJ was contracted to provide design and construction phase services on a new 12-story Heart Patient Tower for the Miami Valley Hospital [MVH].  The professional services agreement required NBBJ to maintain commercial general liability (GL) insurance, to add MVH as an additional insured to the extent of contractual liability assumed by NBBJ, and to hold MVH, its officers, employees, and successors harmless from and against NBBJ’s negligent acts or omissions.

In 2011, Legionella disease broke out in the tower.  The outbreak was subsequently traced back to the plumbing system in the new tower.  Various lawsuits were filed against the hospital arising out of at least one death and ten others who contracted the disease.  MVH, its insurer, and the construction firms involved all called upon NBBJ to defend them, citing a contractual requirement to do so.  NBBJ declined to provide the defense, so MVH sued, alleging that NBBJ not only failed to secure an insurance policy protecting against bodily injury claims caused by the outbreak but also breached its contract by failing to provide a defense.

NBBJ responded that they did, in fact, have a policy, and MVH had been added as an additional insured. However, that policy included an exclusion for bodily injury that was caused by a biological agent or bacteria.  Since Legionella is a bacteria, there was no coverage.  In its motion for summary judgment, NBBJ justified its denial by noting that the contract included the following:

Unless otherwise provided in this Agreement, the Architect and Architect’s consultants shall have no responsibility for the discovery, presence, handling, removal or disposal of or exposure of persons to hazardous materials or toxic substances in any form at the Project site.

The trial court noted the contract never defined “hazardous materials” or “toxic waste.”  Relying on a dictionary definition, the court found that biological agents didn’t fit the definition of either term and therefore couldn’t be excluded.  NBBJ appealed.  The appellate court noted that while NBBJ’s GL policy had a “pollution” and “biological agents” exclusion, the contract with MVH only allowed NBBJ to exclude pollution from its scope of services.  The appellate judge confirmed that NBBJ was not allowed by contract to purchase an insurance policy which excluded injuries resulting from biological agents and that the effects of said agents were within the scope of liability assumed by the architectural firm.

In other words, even if NBBJ’s insurer(s) denied the claims, based on obligations assumed by contract, MVH could look to NBBJ to satisfy those claims.

This has been an excerpt from the April 2016 issue of ProNetwork News, Endorsements, Certificates of Insurance, and Other Tools for Evidencing Coverage:  Why You Can’t Always Have It Your Way. To continue reading the second real case explanation and conclusion, you can download the full PDF version of the newsletter for free on our website.