Maybe A Certificate Of Insurance Is Actually Worth Something

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By now, almost everyone knows that an Acord Certificate of Insurance isn’t worth the paper it is printed on. [Click HERE if you need to see why they think so.] Why, however, “almost”? Who doesn’t know that? Well, that would be the Supreme Court of Washington. A little while ago, the Ninth Circuit Court of Appeals (the federal one) wasn’t sure about Washington state law, so it “certified” that question to the State of Washington’s highest court. Certifying such a question is when a federal court poses a question of pure law to a state’s highest level court, asking it: “what is your state’s law.”

Here’s the actual question the Washington court answered in its October 10 decision:

Under Washington law, is an insurer bound by representations made by its authorized agent in a certificate of insurance with respect to a party’s status as an additional insured under a policy issued by the insurer, when the certificate includes language disclaiming its authority and ability to expand coverage?

The federal court already decided, as a matter of fact, that the insurance broker who furnished a particular Certificate of Insurance had sufficient authority to bind the insurer. It also ruled that a particular party, in this case, a contracting party’s parent company, had been issued a Certificate of Insurance naming it as an additional insured on a commercial liability insurance policy. [The policy language automatically added a party joined in a contract with the policyholder if the contract required that third-party to be added as an additional insured. The parent company was not a party to its subsidiary’s contract with the policyholder.]

When the parent company named on the Certificate as an additional insured submitted a claim against it to the insurer, the insurer responded that the parent company was not actually on the insurance policy as an additional insured.

When the suit that followed got to the federal appellate court, the insurer’s factual claims were rejected, leaving only its argument that the disclaimers on the face of the Certificate allowed it to deny what the Certificate also said – that the parent company was an additional insured. The Certificate reviewed by the court was the “ACORD 25,” the nearly ubiquitous form used in the insurance industry. [Wikipedia describes ACORD (Association for Cooperative Operations Research and Development) as “a non-profit organization that provides the global insurance industry with data standards and implementation solutions.” As to the disclaimers, here they are (using the same bolding as on the Certificate form):

THIS  CERTIFICATE  IS  ISSUED  AS  A  MATTER  OF  INFORMATION  ONLY  AND  CONFERS  NO  RIGHTS  UPON  THE  CERTIFICATE  HOLDER.  THIS  CERTIFICATE  DOES  NOT  AFFIRMATIVELY  OR  NEGATIVELY  AMEND,  EXTEND  OR  ALTER  THE  COVERAGE  AFFORDED  BY  THE  POLICIES  BELOW.    THIS  CERTIFICATE  OF  INSURANCE  DOES  NOT  CONSTITUTE  A  CONTRACT  BETWEEN  THE  ISSUING  INSURER(S),  AUTHORIZED  REPRESENTATIVE OR PRODUCER, AND THE CERTIFICATE HOLDER.

IMPORTANT:  If the certificate holder is an ADDITIONAL INSURED, the policy(ies) must be endorsed.  If SUBROGATION IS WAIVED, subject to the terms and conditions of the policy, certain policies may require an endorsement.  A statement on this certificate does not confer rights to the certificate holder in lieu of such endorsement(s).

Relying on (or, if you prefer, hiding behind) those disclosures, the insurer took the position that even though the parent company was listed as an additional insured, without an actual endorsement, it was not. After all, that’s precisely what the disclaimer says – no endorsement = no coverage. It also explicitly says that the Certificate conferred no rights on its holder (e.g., the parent company).

So, it seemed pretty “open and shut” to the insurer. There it is, right in your face: the policy dictates and the Certificate doesn’t amend the policy.

To our surprise and delight, and we’re sure the “same” to many readers, that’s not how the highest court in the State of Washington saw it. It ruled that the disclaimers were not effective. The Certificate named a specific additional insured while, at the same time, disclaiming the parent company’s status as an additional insured. However, the grant of “additional insured” status was inserted on the Certificate as a deliberate act, whereas the disclaimers were pre-printed boilerplate. There is a basic rule of textual interpretation and it is that “the specific prevails over the general.” The following “clip” from the court’s opinion explains its reasoning in a slightly different way:

That conclusion respects the specific purpose for which the certificate was issued: to inform [the named additional insured], its subsidiaries, and its affiliates that they are additional insureds under the policy. Giving effect to the disclaimers, by contrast, would render issuance of the certificate—and the specific representation within it—pointless. Contrary to [the insurer’s] argument, the certificate would have no informational value at all. All it would do is “set a trap” for the certificate holder.

Well, that makes perfect sense to us. Taking the extra step to actually name an additional insured on a Certificate of Insurance shouldn’t be an instant nullity. It would be the equivalent of a fast-acting, disappearing ink.

An insurance industry association asked the court to consider that allowing a Certificate of Insurance to amend an insurance policy would undermine the “certainty” of insurance contracts and thus violate the public policy of such “certainty.” The court “took the bait” and did a short public policy analysis, one that didn’t make the association happy. It held that:

The public policy of the State of Washington actually compels the opposite conclusion. Insurance companies act through, and are bound by, the representations of their agents made with actual or apparent authority. Enforcing those authorized representations has a modest aim: it provides the principal with an additional incentive to ensure that the agent’s representations—made in person, on the phone, or in writing—are true.

Here’s a word of caution. This “law” applies only in the State of Washington. Another state’s courts, if faced with the same question, may very well agree with the outcome. But, it might not. So, for now, if you really want to be an additional insured, get that “endorsement.” But, don’t forget to carry your own insurance. Why carry your own? Click HERE for our reasoning.

[Readers desiring to see the actual Supreme Court of Washington decision can do so by clicking: HERE.]

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  1. So . . . for now at least, everywhere but perhaps the state of Washington, issuance of a certificate of insurance – and the specific representations within it – oftentimes: (a) is “pointless”, (b) provides “no informational value at all”, and (c) merely serves as a “trap for the certificate holder” (to quote the Supreme Court of Washington in T-Mobile USA Inc. v. Selective Insurance Company of America, 908 F.3d 581 (9th Cir. 2018)).

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