TO: PIA National & PIA Affiliate Leaders

December 13, 2010

TO: PIA National & PIA Affiliate Leaders

FR: Business Issues Committee Technical Working Group:

Andy Harris (NJ) WG Chair & PIA National ISO Representative

PIA National ACORD Representative Keith Savino (NJ)

PIA National Business Issues Committee Chair Susan Sallada, (PA)

RE: Current Challenges Surrounding Certificates of Insurance - Part I of III.

A number of converging challenges have simultaneously arisen to affect a number of areas concerning Certificates of Insurance, all of which PIA members and PIA affiliates must be aware.

The following is Part I in a three-part series of information memos addressing the several areas of challenge that have recently arisen surrounding the Certificate of Insurance.

Synopsis of the Information below:

CERT & SOP P&C ONLY: We are only addressing the use of Certificates of Insurance in standard operating procedures in property & casualty.

Per SE Language of ACORD 25: In essence some carriers were not prepared for conversion to the new form, and a few further questioned its language.

New ACORD 25 P&C Certificate of Insurance Going Forward: ACORD has formed a working group on which PIA National continues to serve which is considering some clarifications on instructions of the form’s use and other items.

CURRENT ACORD 25 USE: The language of the New ACORD 25 Certificate of Insurance continues to make clear that unless the terms and conditions of the listed policy require and recognize the third-party specifically, as a general insurance law principle, third-parties do not have a right to a notice of the policy cancellation. However, insurers may (either directly or through the actions of their contracted insurance producers) decide as a service accommodation only to their named insured, to issue a certificate to a third-party and allow that third-party to receive a notice that the listed policy has been terminated, so long as to do so does not violate the terms and conditions of the listed policy or insurance law; and it is executed in accordance with the insurer’s instructions, on the insurer’s approved form, and by the insurer’s authorized representative.

CURRENT MEMBER SUGGESTED GUIDANCE: In writing, advise your insurers of the current instructions and approved procedures that they’ve provided you in issuing Certificates of Insurance on their behalf, and that you’ll continue to comply with these procedures unless advised specifically in writing by the insurer.

QUESTIONS FROM PIA MEMBERS AND CARRIERS: PIA National and Affiliates are working together to address PIA member questions, comments, suggestions or concerns in this area in one common PIA voice. This includes us outreaching to any of your carries that appear to be confused about their previous and/or continuing carrier authority to PIA agencies and/or the standing insurance law involved in this area. Please direct your inquiries for the Working Group to .

CERT & SOP P&C ONLY: Please be clear that this memo is only addressing Certificates of Insurance as these are used in usual and customary manner in Property & Casualty SOP information needs.

Current Challenges Surrounding Certificates of Insurance

Under these P&C uses, a Certificate of Insurance is an information-only form that an insurer has issued or another’s form it has approved (ACORD, ISO) in conveying certain pieces of information about the policy to a third-party. The insurer does so in response to a request made by their policyholder to convey such policy information on their behalf to a named third party.

The insurer provides such as a voluntary business service to the policyholder on an accommodation-only basis. This means that providing a Certificate of Insurance –

how, when and for what third-party – is not as a requirement or obligation of the terms or conditions of the insurance policy in question or the insurer to its policyholder. Also, neither the insurer nor its listed policy has any contractual connection, policy attachment and/or obligation to any third-party before, at the time, and/or after an insurer has issued a Certificate of Insurance to a third-party. As by common and permitted practice, insurers have long authorized their contracted insurance producers to consider, issue and manage the process of these permitted Certificates of Insurance in compliance to the insurer’s underwriting instructions.

This memo does not apply to nor address the materially different use and meaning of Certificates of Insurance as usually and customarily used in Life & Health insurance sector. Nor does this memo apply to the non-customary, exceptional and very limited use of Certificates of Insurance in P&C when used as the insurance policy document effectively acting as a policy endorsement that attaches/adds a named person/individual to an already existing P&C group &/or master policy. In this case through the Certificate the named person becomes an insured certificate holder under and attached to the existing policy, thus insuring their specific insured interests under the existing P&C group/master policy coverages, terms and conditions are legally attached/conveyed/amended.

Per SE Language of ACORD 25: Issues have arisen around the use of the new ACORD 25 Certificate of Insurance. (Please see attached updated from ACORD. PIA National will continue to work with ACORD on this matter of the per se form).

Reason for Change - In sum, in 2004 issues began to arise around this form’s previous language, “… will endeavor to…” as respects possible notice being given to third-parties of termination of the policy. Increasingly, aggressive third-parties unsuccessfully attempted to “read” themselves into the rights of any insurance policy through “the Cert.”

The Language Change - In response to insurers’ request, ACORD formed a Working Group that included carriers, carrier trades, producers, producer trades and some third-party representatives to come up with improved language. The result is the new ACORD 25. Its replacement language, “Should any of the above described policies be cancelled before the expiration date thereof, notice will be delivered in accordance with the policy provisions...” makes clear that the policy provisions control whether or not “an obligation in contract/policy” exists and/or arises for any third party that may have (or believe that they have) some sort of interest in the policy. And if some service accommodation has been made for the third-party to receive a notice after the policy has been terminated, again the terms and condition governing notice will prevail. AKA – If the third-party is not expressly included in the body of the policy and/or is not named and attached to the policy by binder or endorsement then the policy has no formal legal obligations to the third-party.

If the third-party is named in the body of the policy and/or by attached endorsement/binder then the actual terms and condition of that listed policy and/or its endorsement will control and prevail as to how that third-party’s interest is addressed, to include controlling the function and timing of any notice to be issued.

Implementation - All participating insures and insurance trades supported both the change and clarification. We communicated this update to our respective members, making available the information and instructions issued by ACORD.

A 6-month+ implementation lead time was provided so that vendors, insurers and producers were ready for the conversion to the new ACORD 25. Most importantly, this transition time was also needed by ACORD to file and receive state insurance department approval where needed. This form is in a limited class of ACORD forms that in some states must be filed and/or approved before use is permitted. ACORD’s practice has been to move the industry’s use to the newly adopted and approved form.

The sector of the insurers in charge of achieving this change in the form’s language, meaning and use were fully aware and satisfied with the new ACORD 25. However, it now appears that for some carriers, the department in charge of understanding and making the programming and processing changes in ACORD forms wasn’t paying any attention. These carriers hadn’t realized that some change in their current work process was necessary in order to support the new ACORD 25 that they wanted. In a knee-jerk over-reaction, some carriers believed that this change would unleash tens of thousands of dollars in increased costs to program changes their systems in order to comply with the new form and accommodate issuing notices of terminations to persons listed on a Certificate of Insurance that had been issued on the carrier’s behalf.

Some of these carriers then elected to read the new ACORD 25 form as either creating a possible obligation, since the form used the word “…will….” Some were concerned that the new ACORD 25 didn’t provide sufficient flexibility when the carrier, or their underwriting permissions provided to their insurance producers on their behalf, allowed certain third parties to receive a notice after the insurance policy was terminated. Some carriers’ reactionary solution was to issue updated underwriting instructions to their producers about the form that, unwittingly, confuse the circumstances further, and are misguided from an insurance law perspective.

New ACORD 25 P&C Certificate of Insurance Going Forward: In quick response to this intra-industry confusion surrounding the form, ACORD called a meeting on December 3, inviting key industry trades (including PIA National) and ACORD members to discuss and resolve the underlying issues. Anne Henstrand, Chief Compliance Officer, Government and Industry Affairs of ACORD led the meeting. She heads ACORD’s efforts to provide solutions, working ably with this industry working group.

The results that PIA National and others are supporting are:

a. The new ACORD 25 will go forward.

b. Some accommodation will be made for those carriers and/or vendors that need additional transition time, but on a limited time certain.

c. Insurers were correct in championing and driving the change and move from the old form to the new ACORD 25. Therefore, it is highly preferable for the industry to continue support the new form.

d. The new ACORD 25, as with many ACORD forms, continues to include a space/box for “REMARKS.” This is where insurers may make whatever modifications to the form’s content (so long as it odes not violate the meaning and purpose of the form and/or the listed policy), to include customized for a third-party, as requested by the named insured.

e. ACORD instructions for guidance on the new ACORD 25 uses will be clarified to make clear the flexibility that exists in the form already.

f. We’re working with insurers to help them understand that they have already existing data/processing systems designed to send notices, which can be slightly amended to accommodate certain third-party requests for notice of verifying the policy existence and/or receive notice of policy termination. When and if an insurer permits use of such system, it would still be a service accommodation-only to and for their policyholder and within the insurer’s underwriting guidelines to do so.

g. Given this, insurers can continue to permit their contracted insurance producers to execute such accommodations on their behalf and in compliance with insurer’s underwriting instructions.

h. PIA National very much supports an editorial clarification of the form’s language, as advanced by insurers, i.e.: “SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION DATE THEREOF, the policy provisions will govern whether and how notice of cancellation will be provided to certificate holders.”

CURRENT ACORD 25 USE: However, as it stands now, it is important for all PIA members and their insurers to know, understand and comply with the following:

The new ACORD 25 form’s current language makes even clearer the standing insurance legal fact that no third-party has or receives any attachment to and/or right/obligation in/from any insurance policy by virtue of a Certificate of Insurance being sent to them, per the request of the named insured and the insurer’s permission to do so.

Nor may any third-party attempt to alter; direct alternation; and/or by force of their commercial position to the named insured force, leverage or order changes to the Certificate of Insurance.

Nor may any third-party, as a condition of the commercial relationship between it and the named insured, force either the named insured and/or insurance producer working with the named insured to execute, in any manner, any form created by the third-party that imposes or represents their relationship to the coverages, terms, and/or conditions of named-insured’s insurance policy as respects third-party’s interests.

Insurers may decide to accommodate their named-insured’s request that some policy information and/or service be provided to a specific third-party, and will do so in accordance with their underwriting instructions and decisions to include issued on carrier- approved forms and will determine, define, narrow, limit and control such interests.

Insurers continue to provide their traditional and current practice permissions to their contracted insurance producers to provide and issue, on behalf of the insurer, a great deal of basic, simple information service accommodation to third-parties on behalf of the named insured which includes issuing Certificates of Insurance.

In doing so, producers will, as they have, continue to follow and comply with current insurer underwriting instructions, keeping proper records thereof.

CURRENT MEMBER SUGGESTED GUIDANCE: We encourage that the following process be overseen/handled by the PIA agency owner/principal assigned to insurance carrier compliance. PIA agencies should be clear as to the current status of use and instructions for the new ACORD 25 with each of the carriers and/or wholesale insurance producers with which they conduct insurance business.

In writing to the carrier/wholesaler underwriting assigned to your agency, PIA members should review the current understood underwriting and use guidance that the insurer has in place with your agency at present. This should include under what conditions and what nature of limited accommodation to the wording of the form and meaning the carrier has permitted the agency to follow. Advise the insurer that until you are advised in writing differently, you will continue to comply with these in acting on behalf of the insurer. PIA members should commit any question or request for further clarification from the insurer to writing. If helpful, please feel free to share this memo as reference for the insurer’s review.

Unwitting Confusion: We encourage any PIA agency that receives a confusing response from their insurer in these matters to please advise your PIA Affiliate and this PIA National Working Group . It has come to our attention that in their haste to avoid making system changes and sending notices directly, some insurers have issued new underwriting instructions to their contracted insurance producers. In doing so, these insurers used language that at best confuses and at worst (unintentionally and unwittingly) materially misstates the legal connection between the insurer and their contracted insurance producers in the issuance of Certificates of Insurance.

PIA National underscores the importance for all insurers and wholesale producers to review and be sure your continuing practices comply with the manner in which insurance law has supported the current insurance industry position on ‘CERTs.”

Certificates of Insurance for any purpose began as per carrier created and issued unique forms designed to provide policy insurance to listed third-parties at the request of and on behalf of their named-insured. Only an insurer may decide if any information from any of their issued policies may be shared with any others that are not party to the policy, except as expressly and specifically required in law or by court order. Only an insurer may decide what form may be used to communicate such information about their policy on behalf of their insured. Only an insurer may decide what the meaning and limit of doing so is in terms of their insurance policy, named-insured and insurer obligations.

Insurers continue to include and make these (and many more) specifics clear to insurance producers in the contracts that they regularly executed with them. As regular practice insurers have granted contracted insurance producers permission to engage such accommodating services, but only on behalf of the insurer and in accordance with the insurer’s underwriting and processing instructions.

For decades the courts have recognized and agreed that Certificates of Insurance (per above stated use) are for information only, issued on a carrier approved form, convey a small synoptic portion of data from the policy specific as of the date of issuance (regardless of when issued), are a service accommodation to the insurer’s named-insured’s request, and in no way extend rights to or attach the recipient of the “CERT” to any part of nor does the “CERT” take the place of the insurance policy listed.

Insurers had once required that any third-party information requests coming from their named-insureds be directed to the insurer so that they internally would directly review, decide and issue either the “CERT,’ or the declination to issue a “CERT.” But about twenty years ago, insurers recognized the cost-saving value to them by providing their contracted insurance producers permission and expressed guidance to manage much of the SOP “CERT’ work directly in their agencies and on the insurer’s behalf. This processing change created more work and expense for insurers’ insurance producers, but it was more responsive to customers and third-parties with SOP FYI information needs.