Chapter 4 Memorializing Additional Insured Status

• Library: The Handbook on Additional Insureds (ABA) (2018 Ed.)

CHAPTER 4 Memorializing Additional Insured Status

Katherine J. Henry and Brendan W. Hogan¹

A party seeking additional insured ("AI") status should memorialize that status to ensure that it can establish coverage when needed. Claims can and do arise years after coverage is procured, so accurate records of coverage are essential to securing a later insurance recovery. Contracting parties often require a Certificate of Insurance ("COI") to memorialize AI coverage. COIs are one-page information sheets generally issued by insurance brokers or agents at the request of named insureds ("NI").² a COI records a broker or agent's representation that one party is an AI on another party's insurance policy. The COI does not grant AI status, it simply states that the NI's policy includes the certificate holder as an AI.

Although a COI advises a party of its AI status, only the insurance policy indisputably memorializes AI status because only the insurance policy (including endorsements) grants AI status. While COIs provide a record of AI status, an AI can confirm that status only by reviewing the insurance policy itself. For that reason, a prudent AI should include contract provisions that require the NI to provide a copy of the applicable policy or policies to the AI, as well as other information necessary to verify the scope and limits of coverage.

In addition to memorializing AI status, prudent AIs should scrutinize carefully the AI policy provisions to confirm that the scope of AI status is consistent with the bargained-for contractual requirements. Common endorsements, whether "blanket" endorsements that provide "automatic" AI status or "scheduled" endorsements that provide AI status only to identified parties or classes of parties, contain limitations and exclusions that can alter the scope of coverage available to AIs. In some cases, additional endorsements or manuscript language may be necessary to implement the bargained-for AI status.

In circumstances where the entire policy has been lost or destroyed, a COI, along with other documents and testimony, provides secondary evidence of the existence of coverage and AI status.

I. Certificates of Insurance Record Additional Insured Status

A. Certificates of Insurance Are Third-Party Representations That the Listed Policies and Endorsements Were Issued to the Named Insured

What is a COI, in its most common form? It is not part of the insurance policy.³ It is not a contract at all, as the COI itself reflects.⁴ It is more simply a written statement, usually issued by an insurance broker or agent, describing certain insurance coverages issued to the NI for certain policy periods. NIs use COIs to demonstrate compliance with a counterparty's request or contract requirement that the NI has procured insurance coverage for certain risks.⁵ Often, the insurer is unaware that a COI has been issued.

COIs typically identify the insurance policies that include AI coverage by policy type, issuing insurer, policy number, policy periods, and policy limits. COIs may also identify the specific AI endorsement or endorsements granting AI status.

The Association for Cooperative Operations Research and Development (ACORD) promulgates standardized COI forms frequently used to memorialize AI status. The ACORD 25 COI form commonly is used to evidence AI status on commercial general liability ("CGL") policies. The ACORD 25 form identifies the NI, types of policies in effect (CGL, auto, employer liability, excess), policy periods, policy limits, and names of the insurers.⁶ The ACORD 25 form identifies the certificate holder as an "additional insured" in the "additional remarks" section, usually by identifying the policy provision or endorsement that grants AI coverage.

The ACORD 24 COI form⁷ commonly is used to evidence AI status on property policies. However, if the party seeking coverage has an insurable interest in the property, ACORD forms 27 ("Evidence of Property Insurance"), 28 ("Evidence of Commercial Property Insurance"), and 29 ("Evidence of Flood Insurance") provide evidence of insurance.

ACORD forms typically omit information critical to AIs. They may omit the deductible or self-insured retention. They do not show whether the insurance coverage is primary or excess to the AI's own insurance. They do not identify critical terms and conditions of coverage. They do not identify exclusions that may impact coverage. They do not identify other endorsements that may affect coverage. They lack any information on erosion of policy limits by other claims and do not inform the AI whether the policy limits have been exhausted.

Some of these deficiencies can be resolved by using a manuscript COI form, but brokers and agents may be reluctant to issue manuscript forms due to liability concerns. Brokers and agents may turn to the insurer's underwriting department to prepare and approve a manuscript COI. Underwriter approval of a manuscript COI depends on whether the COI includes language more onerous than a standard form, though the relative bargaining power of the NI and the AI can also play a role. An underwriter's approval may provide the NI and the AI an argument that AI status has been conveyed, even the absence of clear policy language.⁸ This approach is not without its problems. For example, if the AI drafts the manuscript certificate or asks another to do so on its behalf, ambiguities in the certificate are not construed against the insurer.⁹ Additionally, if the insurer rejects the manuscript certificate, the parties must seek other means to confirm and record AI status.

B. Certificates of Insurance Do Not Grant Coverage

As a general rule, a COI does not confer AI coverage because it is not part of the insurance policy.¹⁰ ACORD forms warn that they do not grant AI status to the certificate holder, and that only the insurance policies themselves grant that status. The ACORD 25 form incorporates language limiting its scope: it "confers no rights upon the certificate holder" and "does not affirmatively or negatively amend, extend or alter the coverage" provided by the subject policy.¹¹ The ACORD 25 form warns that Als must obtain coverage through policy provisions or endorsements: "IMPORTANT: If the certificate holder is an ADDITIONAL INSURED, the policy(ies) must have ADDITIONAL INSURED provisions or be endorsed."¹² The ACORD 24 form contains the same limiting language. ACORD forms 27, 28, and 29 contain the limiting language found in ACORD 24 and 25 ("confers no rights upon the certificate holder" and "does not affirmatively or negatively amend, extend or alter the coverage" provided by the subject policy), but lack the separate "additional insured" disclaimer.

Courts construing ACORD forms typically enforce the disclaimers eschewing coverage. The majority of reported coverage cases involving COIs involve the ACORD 25 form, with most courts holding that the form's disclaimers preclude the COI from conveying any coverage,¹³ including AI status.¹⁴ The disclaimers preclude AIs from reasonably relying on COIs to prove coverage.

Even in cases where the COI lacks the disclaimers, courts generally will not find that the COI granted the putative AI rights under the policy where no such rights existed; the courts will more often rule that the AI reasonably relied on the certificate.¹⁵ Reasonable reliance does not modify the insurance policy and therefore does not provide grounds for a contractual claim,¹⁶ but may provide a basis for a breach-of-contract claim against the NI required to procure coverage, or it may provide the basis for a broker malpractice claim.¹⁷ In a few very limited instances, courts construing COIs without similar disclaimers have found that they bestow coverage, though these decisions are very rare, not persuasively reasoned, and cannot be relied upon to secure coverage for an AI where the terms of the insurance policy preclude coverage.¹⁸

II. Only an Insurance Policy Grants Additional Insured Status

A. The Named Insured's Insurance Policy Provides Additional Insured Status

The Nl's policy grants AI coverage. Therefore, the best available record to "memorialize" AI status when seeking coverage is the insurance policy itself (including all endorsements). Only insurance policies (including AI endorsements) grant coverage to AIs.

Usually, endorsements to the NI's insurance policy grant "automatic" status by defining certain categories of entities or identifying specific entities, but sometimes language in the policy form itself provides AI status. Policy forms promulgated by the Insurance Services Office ("ISO") provide AI status by endorsement.¹⁹ Manuscript insurance policies may include similar endorsements or may include certain entities as AIs in the policy forms themselves.²⁰

B. Contract Requirements Necessary to Verify Additional Insured Status

An AI should obtain a copy of the NI's policy to adequately memorialize and verify its AI status. Because an insurance company often will not provide a copy of the NI's insurance policy to an AI, a prudent AI should draft detailed insurance specifications and require specific documentation of the required coverage (preferably a copy of the required insurance policies and any required renewal policies). AI insur!!!

• Type of insurance (e.g., CGL, builder's risk, completed operations, property);

• ISO policy form or its equivalent;

• Minimum required limits;

• Maximum deductibles or self-insured retentions;

• Specific AI ISO endorsement or specific manuscript language (based on the desired scope of coverage);

• Waiver of subrogation;

• NI's policy is primary and shall not seek contribution from AI's insurance; and

• 30 days written notice of cancellation. ²¹

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Additionally, AI insurance specifications should be separate and distinct from other related provisions (such as indemnity and hold harmless provisions).²² Finally, proof of coverage should not be a condition precedent to the contract (otherwise a counterparty's failure...