The Danger of Inadequate
Insurance Reviews
By Steve Titus
How can a certificate of insurance, seemingly simple and innocent, be so riddled with complexity
for brokers and their clients? This most basic of documents, the certificate of insurance,
acknowledges the writing and existence of an insurance policy. It should always accurately reflect
the coverage provided by a specific policy and be aligned with, for example, a complementary
written contract setting out an insured’s insurance requirements. Ideally for alignment to occur, an
insured’s attorney and/or insurance broker should review relevant contracts and related certificates
of insurance prior to their execution or issuance, as the case may be. In practice, there are times
when the insured does not engage its attorney or the broker is provided with an opportunity to
review the contract later than is desirable. How can brokers protect themselves and their clients
from entering into contracts with insurance requirements that are not aligned with the clients’
actual coverage? Consideration of a few best practices can go a long way in mitigating risk.
The Shortfalls of Current Practice
In a perfect world, every contract and corresponding certificate of insurance would be reviewed
by the insured’s attorney who would advise the insured regarding the changes that are necessary
for the insured’s actual insurance coverages to be in compliance with the requirements of the
contract. This information would then be communicated to the insured’s broker, who would obtain
the appropriate coverage. Unfortunately, that is far too often not the process that occurs in
day-to-day practice.
How to Improve the Status Quo
When a client does not engage its attorney to review and compare the conditions of the coverage
with the exposures of the contract, the next best scenario is one in which the insured sends the
insurance provisions in the contract to his or her insurance broker for review. In such cases, often
the same person charged with issuing the certificate of insurance is asked to perform the initial
contract review. Under such circumstances, it may be helpful if a second set of eyes with greater
expertise reviews the initial analysis. Once completed, communication can occur with the client on
such items as:
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Additional Insured Wording (type and form)
Waivers of Subrogation
Primary and Non-Contributor Wording
Notice of Cancellation Provisions
Coverage Deficiencies
Coverages Not Available in the Market
For the avoidance of doubt, it is advisable that the insurance broker tell the client that he or she is
not providing legal advice. The following is an example of a communication that could serve that
purpose:
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“The scope of our review was to determine if your current insurance program placed through our
Agency/Brokerage addresses the types and amounts of insurance coverage described in the
contract that you are considering. We have identified significant insurance obligations, and have
attached a summary of the changes suggested in your current insurance program to meet the
requirements of the contract. In performing this review, our Agency/Brokerage is not providing
legal advice or a legal opinion concerning any portion of the contract. In addition, we are not
undertaking to identify all potential obligations or liabilities that may arise under this contract. Our
review is provided for your information, and should not be relied upon by third parties.”
Having discussions with clients about the scope of the broker’s review, including a communication
of the kind mentioned above with all contract and certificate of insurance reviews, protects both
clients and brokers.
Helping Clients in the Worst Possible Scenario
At times, the best and next-best practices do not occur. Sometimes, clients enter into a contract
that has not been reviewed by either an attorney or an agent/broker. This can be a dangerous and,
unfortunately, not uncommon scenario for insureds.
In this scenario, brokers either find out that a fully executed contract exists when they receive a
request for a certificate of liability insurance or when they actually receive the executed contract.
In the first case, a broker, unaware of the contract terms, may issue a certificate to the insured
describing the actual coverage, only to receive a rejection due to non-compliance with contractual
language. Normally, the insured then shares the contract with the broker and the broker is able to
identify where deficiencies exist and then the broker attempts to align the policy language,
coverage and limits with what the insured has agreed to contractually.
In many cases, the insured can negotiate with the contract counterparty to amend terms to a
reasonable standard, and/or coverage can be broadened or purchased to ensure compliance. For
example, if a contract reads: “contractor will be liable for any and all liability arising out of their
operations performed on behalf of XYZ Company,” that language may be revised as there is not an
insurance policy commercially available that will respond to “any and all” liability.
Conclusion
Having considered everything from the best to the worst-case scenario, there are a few key actions
that insureds can take to protect their interests and maintain mutually beneficial relationships with
their brokers:
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Retain the services of a qualified attorney.
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When engaging an attorney is not possible, provide your broker with the insurance
language in the proposed contract for review. Brokers may be able to determine and
advise you on how your current insurance program matches up with the contract
requirements. Deficiencies will be communicated and solutions discussed.
When clients act in their own best interest and enlist the aid and expertise of their brokers
in contract and certificate of insurance reviews, risk can be more effectively mitigated.
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About the Author
Steve Titus, Managing Principal, with Integro is located in Southern California and specializes in
applying a risk management approach to middle market and complex private clients.
About Integro
Integro is an insurance brokerage and risk management firm. Clients credit Integro’s superior
technical abilities and creative, collaborative work style for securing superior program results and
pricing. The firm’s acknowledged capabilities in brokerage, risk analytics and claims are rewriting
industry standards for service and quality. Launched in 2005, Integro and its family of specialty
insurance and reinsurance companies, some having served clients for more than 150 years,
operate from offices in the United States, Canada, Bermuda and the United Kingdom. Its U.S.
headquarter office is located at 1 State Street Plaza, 9th Floor, New York, NY 10004.
877.688.8701. www.integrogroup.com
The content contained herein is not intended as legal, tax or other professional advice. If such
advice is needed, consult with a qualified adviser.
© Integro Ltd. 2016
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