A couple of weeks ago I wrote a blog post on the legality of agents issuing opinion letters about the coverages provided by their insured’s insurance policies. The next week, I received an email from a participant in the Free Legal Service Program that I run for the Independent Insurance Agents of Georgia asking me to take a look at the language on an Additional Remarks Schedule that another agency had been routinely adding to the certificates of insurance it issued. That schedule contained language that purported to revise the “cancellation clause” of ACORD form 25. It stated that the agency that issued that document would “provide a 30 day notice of cancellation to the certificate holder” if any of the policies described on the ACORD form 25 were “cancelled prior to the expiration dates thereof but only as required by written contract.”
The addition of the above language to an ACORD form 25 is bad for the agency in question on two levels. First, it provides a basis for the certificate holder to sue the agency if it does not do what it states it will do. That could very well happen if there is a cancellation for non-payment of premium or the premium has been financed or the agency fails to effectively monitor the cancellation notices it receives. Depending on the situation, the damages for a violation of this self-imposed duty could be significant.
The agency may be counting on the condition added at the end, “but only as required by written contract’, to limit its exposure. However, it is unclear what “written contract” is being referred to. If the reference is to the policy of insurance described on the ACORD form 25, it is entirely possible that what is in that policy of insurance is not consistent with the rest of the language on the Additional Remarks Schedule. That would expose the agency to disciplinary action by the Insurance Commissioner’s Office, as the insurance certificate statute and the regulations adopted by that Office prohibit the preparation or issuance of a certificate of insurance “that contains any false or misleading information.” If the reference is to another separate contract between the agency and the certificate holder, that would be a violation of the prohibition on making reference in an insurance certificate to any contract other than the contract of insurance identified in the certificate.
The attempt to revise the “cancellation clause” of the ACORD form 25 also runs afoul of the section of the statute that states, “A certificate holder shall have a legal right to notice of cancellation, nonrenewal, or any material change, or any similar notice concerning a policy of insurance only if the person is named within the policy or any endorsement and the policy or endorsement requires notice to be provided. The terms and conditions of the notice, including the required timing of the notice, are governed by the policy of insurance and cannot be altered by a certificate of insurance.” By attempting to specify what notice of cancellation will be provided regardless of what the insurance policy in question states, the agency has violated this statutory requirement and put “false or misleading information” on the certificate.
Finally, the addition of the language in question may also result in the certificate of insurance being rendered useless, as the statute states any certificate of insurance “prepared, issued, or requested in violation of this Code section shall be null and void and of no force and effect.” Such an outcome would provide another basis for the certificate holder, as well as the insured, to sue the agency.
I realize the competitive pressure to do what a prospective certificate holder wants done is great. However, the risk assumed by the agency and the agent involved in the issuance of the above Additional Remarks Schedule is greater. They may lose a customer if they don’t issue such a document, but they would be exposed to potentially significant liability and may find their licenses suspended or revoked if they do.