Discord: ACORD introduces form that spells C of I flux.
This is good news for additional insureds and their risk manager. It's bad news for producers: more work for no added pay. To make it worse, the information needed to complete form 855NY isn't captured by most databases so, unlike the certificate itself, it won't be computer-generated. Furthermore, answering the questions requires that the person completing the form have a working knowledge of insurance. The only possible positive for producers is that it may reduce the demand for special wording. Legislation to specifically bar such demands has passed both the NY Senate and Assembly, but appears stalled waiting for the Governor's signature. He vetoed similar legislation last year. As of this writing (7/31/14) there's no news.
Why does almost everyone want to be added as an additional insured? Putting aside what you said to your mother---"all the other kids do it"---there are good reasons. Basically it's letting someone else pick up the check In risk management parlance, that's called risk transfer. For self-insureds or insureds with high deductibles or retentions, the need is obvious because payments made by someone else go right to the additional insured's bottom line.
Do the others really need to be added as additional insureds? Yes. The most compelling reason for most additional insureds is protecting their own insurance loss records. In the long run, insureds pay their own losses. Even in the short run, the impact of claims on premiums can be dramatic. And, of course, additional insurance at no direct cost is always welcome, particularly for liability insurance for which no one knows how high is up.
In addition, it's good risk management practice to have financial responsibility for accidents fall on the one closest to the work The plumbing contractor is better equipped to enforce safety on the job than the building owner who may be located miles away and not know a wrench from a screwdriver.
Additional insureds should tailor their contracts to take best advantage of the form. For producers my advice is much simpler: Take two aspirin and call your lawyer in the morning. Below are my thoughts about how additional insureds can use the new form. (1)
Let's look at the form on the opposite page. The letters below refer to items in the 855NY form.
The reply to this question indicates whether the forms used in the policy were filed with the NY Department of Financial Services (DFS). Forms used by admitted and authorized insurers are filed with and reviewed by the DFS except for policies written in the free trade zone. Free trade zone policies are also written by admitted insurers and are not insignificant. They account for more than $2.8 billion in premiums in New York--seven insurers write more than $100 million a year each. (2) The form should have called for separate answers about free trade zone and excess line policies because only admitted or authorized insurers are covered by the NY Property/Casualty Security Fund (colloquially called the Guaranty Fund).
If only the "excess line and free trade zone" is marked, the additional insured will have to be sure the insurer is admitted. I think both boxes should be checked if it's a free trade zone policy written by an admitted insured, but this may not happen. You can search for admitted/authorized insurers on the DFS website: https://myportal.dfs.ny. gov/web/guest-applications/ins.-companysearch.
I recommend that clients require coverage that is provided by admitted or authorized insurers. If the insurer is not admitted or authorized, I recommend that the certificate be rejected unless the additional insured is willing to accept a non-admitted insurer.
I recognize that for certain lines of insurance non-admitted insurers are the most common insurers and sometimes the only ones available. If an additional insured accepts a non-admitted insurer, it should be certain that the insurer is eligible to write non-admitted business in New York. Not all insurers are. The Excess Line Association (ELANY) website lists eligible insurers: http://www.elany.org/es.aspx?m=elf (3)
Eligible insurers file financial statements and other documents with ELANY as required by New York Insurance Regulation 41. ELANY points out that New York insurance law, in addition to filing requirements imposed on insurers, requires brokers to use "due care" in selecting the unauthorized insurer.
B. General Liability (CGL) Policy Form
One answer for this item lumps ISO forms with ISO modified forms. That's not helpful. "ISO modified forms" can encompass a multitude of sins. My recommendation is that contracts require a specific ISO form including the edition number. The additional insured should also have the right to obtain copies of policies and endorsements when it feels that's necessary.
The second answer is "other." That almost always means wording that differs from current ISO forms. Whichever box is checked, a copy of the form should be reviewed by someone knowledgeable about coverage to see if it is acceptable.
C. Specific Operations Excluded or Restricted (CGL policy)
If any operations are excluded or restricted, the additional insured will need a copy of the exact policy wording. If important operations are excluded or restricted, the certificate should be rejected.
D. Additional Insured Endorsement
This is another item that doesn't provide sufficient information. If the "other" box is checked, the additional insured definitely needs a copy of the endorsement. I'd want one even when one of the ISO boxes are checked as they don't specify which edition of the form is being used. (4)
There's a tremendous difference between editions. The consensus of risk managers is that the 1185 version of the CP 2010 additional insured endorsement is the "class act." It's still available from ISO, BUT it's very hard to get. Some contractors (generally large ones that spend a lot of money on insurance) can get it. Current additional insured forms do not include complete operations. For an additional insured to receive completed operations coverage, the Additional Insured--Owners, Lessees or Contractors--Completed Operations endorsement is needed. The number is CG 2037. The 07 04 and 10 01 versions are preferable to the 04 13 one.
The additional insureds contract should require form numbers with specific editions and the certificate should be rejected when it doesn't meet requirements.
E. Primary and Non-contributory CGL policy
The additional insured's contract should require that the insurance provided will be primary and non-contributory to any other insurance available to it. A "No" answer should generate a rejection of the certificate.
There is a potential gray-area when the answer is "Yes." Recent ISO CGL forms state that the policy is excess over any other primary insurance available to the insured when the insured has been added as additional insured by endorsement. However, ACORD, in the instructions for the 855NY, indicates that it may not work in all cases. (5) Furthermore, not all liability policies include this provision.
ISO has provided a solution to this problem: Endorsement CG 2001 0413 Primary and Noncontributory--Other Insurance Condition. The endorsement states that the insurer will not seek contribution from the policy of the additional insured if there is an underlying written contract or agreement stating that the coverage for the additional insured must be primary and noncontributory. The additional insured should require that endorsement CG 2001 0413 be attached to contractors' CGL policies and should require that the contractors' policies be primary and noncontributory.
F. Additional Insured Will Receive Advance Notice If Insurer Cancels
Additional Insureds want advance knowledge of cancellation. Few policies provide it and it is very difficult to obtain. Unless you have the negotiating upperhand, you'll have to accept what the policy provides. Last month, I wrote about the City of Atlanta Law Department's decision to stop asking for written notice of cancellation and to ask instead for a copy of the notice of cancellation within two days of receipt by the contractor. That may be a wise alternative for most additional insureds.
G. Blanket Contractual is Removed or Restricted--CGL policy
If the "Blanket contractual liability" definition has been removed or restricted, the policy is not equal to ISO standard coverage and should be rejected.
H. Insured Contract exception to the employers liability exclusion is removed or modified--CGL policy
If the "Insured contract" exception to the employers liability exclusion is removed or modified, the policy is not equal to ISO standard coverage and should be rejected.
I. Policy Does Not Cover Injury Claims by Employees of the Named Insured or Subcontractors-CGL policy
If this question is answered "Yes," reject the certificate. A "yes" answer means that the CGL policy does not cover the additional insured for claims involving injury to employees of the named insured or subcontractors. The draconian provisions of NY Labor Law Sections 240 and 241 MAKE THIS A SERIOUS PROBLEM IN NY. I've written extensively about this problem in the past. (6)
J. Earth Movement--CGL policy
If "Earth movement, excavation or explosion / collapse / underground property damage" is excluded, reject the certificate when the project involves that type of work.
K. Insured vs. Insured
If this question is answered "Yes," meaning that insured vs. insured suits (sometimes referred to as "cross liability") are excluded or restricted, reject the certificate unless the exclusion is limited to named insured vs. named insured.
L. Property Damage to Work Performed by Contractors or Subcontractor
If this question is answered "Yes," it means that property damage to work performed by subcontractors (exception to the "damage to your work" exclusion in the ISO CGL policy) is excluded or restricted. This is an undesirable exclusion. If you have negotiating power, reject the certificate.
M. Excess/umbrella policy is primary and non-contributory for additional insureds
The situation for primary and non-contributory is even more complex for excess/ umbrella policies than for CGL coverage. By definition, excess/umbrella policies require that the underlying policies pay first. Arguments arise over whether the contractor's excess/umbrella insurance must be exhausted before the additional insured's excess/umbrella coverage starts to contribute. Further, some claims can involve a number of years' policies, which generates arguments over whether all primary policies must be exhausted first. (7)
Nevertheless, additional insureds should require that the contractor's excess/umbrella policies be primary and non-contributory to any other insurance available to the additional insured. If the contract contains such a provision, reject the certificate when this question is answered "No."
The 855NY form is a great step in the right direction. However, it is much more complex than certificates of insurance, which are often incorrectly completed. I fear that many 855 addenda will be in error. The additional insured may have little recourse when the certificate misstates coverage.
The 855NY form and the certificate of insurance both clearly state that they do not amend, extend or alter the coverage afforded by the policies. Thus, a contractors insurance company may be able to dodge the claim unless it issued the certificate. It's rare to see certificates issued by insurance companies.
There will, without a doubt, be lawsuits against producers by additional insureds who fmd themselves with phantom coverage. My layman's opinion is that they will not succeed in imposing liability on the broker who issued the erroneous 855NY form. When it was issued by an agent, it may be a different story. We'll have to wait and see. In the meantime, make sure you have good E&O coverage.
(1) My comments are from my perspective as an insurance consultant. I'm not an attorney. These suggestions should be reviewed by an attorney before they are incorporated into contracts or other documents.
(2) Derived from email from Peter H. Bickford, Esq. received 7/24/14
(3) Some of these comments are based on an email message from Dan Corbin CPCU, CIC, LUTC Director of Research, Professional Insurance Agents, Glenmont, NY. Dan was part of the group that worked on creating the form.
(4) Corbin Op. cit. Dan Corbin commented that the intention was that a check in the ISO box would indicate that the current version of the form was used. If the current form wasn't used, the form number and edition date are to be entered as "other" even if it is an ISO form. That can be confusing as not all insurance companies immediately adopt ISO changes. Furthermore, the 855NY form may be reviewed years after it was generated, making it even more difficult to determine just what edition of the endorsement was used. I think ACORD should have called for the edition date.
(5) ACORD Instruction Guide (https://www.acord.org/) ACORD forms and guides are available without charge by registering at the website.
(6) For example, see: Jerome Trupin "Certificates of Insurance in the News Again" Insurance Advocate June 9,2014 page 12 and Jerome Trupin "Perfecting Clients' Protection is a Moving Target" Insurance Advocate September 10,2012 page 16
(7) Op. cit. The ACORD guide to the 855NY form has a good discussion of this problem:
JERRY TRUPIN, CPCU
Jerome "Jerry" Trupin, CPCU, is a partner in Trupin Insurance Services located in Briarcliff Manor, NY. He provides property/casualty insurance consulting advice to commercial, nonprofit and governmental entities. He is, in effect, an outsourced risk manager.
Jerry has been an expert witness in numerous cases involving insurance policy coverage disputes and has taught many CPCU and IIA courses.
Jerry has spoken across the country on insurance topics and is the co-author of over ten insurance texts used in CPCU and IIA programs including Commercial Property Risk Management and Insurance and Commercial Liability Management and Insurance. He regularly contributes articles to CPCU Society publications, the Insurance Advocate, and others. He can be reached via email at email@example.com. Thanks to Jerry Trupin for this article and to the CPCU Society for letting us reprint it.