Can You Rely on a Certificate of Insurance

David Lynch | Construction Law | Kilpatrick Townsend & Stockton | November 4, 2019

Commercial contracts often require that the parties maintain certain liability insurance and that the policies also contain endorsements extending benefits, such as additional insured status and waiver of subrogation. In order to confirm compliance with the contract provisions, parties are generally required to produce a certificate of insurance from the broker stating that the insurance is in place and that the benefits required by the contract are in the policies.

What happens when a loss occurs and it turns out that the policies are not in place or that the benefits, such as additional insured status, are not in the policies? The standard certificate of insurance states that the certificate is issued for information only and confers no rights upon the certificate holder. The certificate also states that it does not amend, extend or alter the coverage described in the document. Is this effective?

In most states the language in the certificate is enforceable and in the event the described coverage does not exist, then no remedies exist against the broker or the insurance company. As the New Hampshire Supreme Court said, “In effect, the certificate is a worthless document; it does no more than certify that insurance existed on the day the certificate was issued.” Bradley Real Estate Trust v. Plummer & Rowe Ins. Agency, 136 N.H. 1, 609 A.2d 1233, 1235 (N.H. 1992). See also Mountain Fuel Supply v. Reliance Ins. Co., 933 F.2d 882, 889 (10th Cir. 1991)(applying Wyoming law); Taylor v. Kinsella, 742 F.2d 709, 711 (2nd Cir. 1984)(applying New York law); Erie Ins. Exchange v. Gosnell, 246 Md. 724, 230 A.2d 467, 469 (1967); Alabama Elec. Co-op., Inc. v. Bailey’s Constr. Co., Inc., 950 So2d 280, 285-86 (Ala. 2006)(reliance on a certificate of insurance is not reasonable in light of disclaimers); Via Net, US v. TIG Ins. Co., 211 S.W.3d 310, 314 (Tex. 2006)(“[T]hose who take such certificates at face value do so at their own risk”).

Recently the Washington Supreme Court held to the contrary. T-Mobile USA, Inc. v. Selective Ins. Co. of America, 2019 WL 5076647, *7 (Wash. 2019)([A]n insurance company’s agent who makes an authoritative representation binds the insurance company, even when that specific representation is transmitted via a certificate accompanied by general disclaimers”). It should be noted that in T-Mobile the Court found that the broker had apparent authority to act on behalf of the insurance company.

The result of the majority view requires that in order to verify that another party’s insurance policies comply with the requirements in a contract the policies themselves should be reviewed. Unfortunately, many companies are unwilling to provide their policies for review. A further difficulty is that, even if the policies were provided, insurance policies are difficult contracts for a lay person to construe.

A second alternative, one that has been gaining use, is to require that the certificate of insurance include copies the portions of the policy which show compliance with the contract requirements. This would include, at a minimum, the additional insured, wavier of subrogation, and primary and non-contributory endorsements, and potentially the declaration page and the schedule of forms and endorsements. Again, these policy provisions are often difficult for a lay person to construe.

Attacking Those That Help Policyholders Rebuild, Make Claims, and Battle Insurance Companies

Chip Merlin | Property Insurance Coverage Law Blog | November 4, 2019

The Tampa Bay Times published an article yesterday which should be of concern to all policyholders. Florida’s elected official who then overseas the Department of Financial Services is calling for a 30-day time period for policyholders to cancel public adjusting contracts.

One can imagine what is going to happen. Insurance companies delay and deny claims. Their policyholders get upset and hire a public adjuster. Those that hire public adjusters then get calls directly from the insurance company promising better service and more payments if they will just fire their public adjuster saving 10 percent. The public adjuster gets terminated. The insurer does a little better, but not enough. The pattern repeats itself over and over. Delays and under payments are even more rampant.

The elected official making this suggestion owns a seafood restaurant. I wonder if he would be willing to allow his customers to pay only a portion of their bill if they did not like their meal or a portion of it?

I can understand an insurance company officer blaming anybody but his claims department for taking too long to pay a claim or wrongfully denying it. I can understand why those that run insurance companies do not like those in academia writing books—like Professor Feinman, who wrote Delay, Deny, Defend—which expose the systemic wrongful claims practices which many insurance companies engage. It does not take a rocket scientist to figure out that taking premiums and not fully and promptly paying claims is a lot more profitable than playing by the rules and doing so. What wrongful acting insurance company wants all that pointed out?

So, maybe those insurance executives can work with government officials overseeing insurance to blame those helping the policyholders rebuild, make their claims and enforce the insurance contract so they cannot do so? I can imagine those insurance executives and their lobbyists can make up a strategy to find some bad apples in the ranks of those helping policyholders as examples and make laws that shut up those troublemakers and keep them from helping the policyholders.

The elected Florida official had this to say about public adjusters:

I’ve seen PAs that sign people, and then they sit back there on Facebook all day long, because they know that they have got an airtight contract, and they will leave you twisting in the wind.

It is hard to deal with this logic. Who are all these public adjusters? I am aware of one panhandle public adjusting firm with hundreds of clients that has a huge backlog of pending cases and has an immense presence on Facebook in Panama City—everybody in Panama City knows the firm I am talking about. But virtually all public adjusters I know want the claims they are working on paid quickly so they can make money and move to other work.

Which leads to the big question—why aren’t Florida government officials suggesting laws and regulations to the entities not fully and promptly paying the claims? Policyholders do not want to hire people like me to sue their insurance companies or help get the claims payments fairly made for the full amount owed. They are forced to do so because their own insurers have let them down.

Just as academia has noted, policyholders and society need strong unfair claims practice laws which are enforceable and which the insurers are afraid enough of that they will stop underpaying and delaying the payment of their customers’ claims.

Public Adjuster Not Entitled to Fee When it Fails to Prove What Amounts Were Owed

Chip Merlin | Property Insurance Coverage Law Blog | November 3, 2019

Public adjusters sometimes find themselves in disputes with their own clients. Public adjusters should be paid fees for services they perform as promised in their contracts. Failing to provide those services or performing services which harm rather than help the policyholder will invariably cause the policyholder client to rightfully challenge those fees.

A Texas case decision issued last week is a good study of how things can go wrong. There, the facts of the public adjuster contract indicated the following:

In September 2007, Bedford Hospitality contracted with CCPA to adjust the ‘loss and damages by hail/wind’ on its behalf. In the one-page contract form, which we reproduce at the end of this opinion, Bedford Hospitality ‘agree[d] to pay CCPA … ten percent (10%)* plus sales tax if applicable as agreed of the amount as adjusted of the replacement cost recovered on account of loss on structure, contents, business interruption, loss of use, [and] extra expense.’ . . . Above the underlined ‘ten percent’ was handwritten, ‘To be paid 10% over 130,000.00 al[ ]ready paid.’ Following the description of the payment, the contract identified Bedford Hospitality’s policy number and Colony as the insurer. Finally, next to an asterisk, the paragraph concluded, ‘The total commission payable to CCPA … may not exceed 10% of the amount of the insurance settlement.’

As a side note, the Texas public adjuster statutes provide in part:

Sec. 4102.104. COMMISSIONS. (a) Except as provided by Subsection (b), a license holder may receive a commission for service provided under this chapter consisting of an hourly fee, a flat rate, a percentage of the total amount paid by an insurer to resolve a claim, or another method of compensation. The total commission received may not exceed 10 percent of the amount of the insurance settlement on the claim.

Public adjusters should always make certain their contracts comply to the letter of the law in the state they practice.

In this case, appraisal was demanded, and the trial court noted that the public adjuster refused to go to an inspection and had “abandoned” their adjustment in November 2007. The insurer then refused to go to appraisal and the policyholder filed litigation in 2009. That suit settled for an unsegregated amount which the public claimed 10 percent of the entire settlement.

The trial and appellate court then ruled that the public adjuster was entitled to nothing because it did not prove how much of the settlement was for the “replacement costs” and other specifics of the claim rather than something else, such as attorney fees, interest, or actual cash value.

I am certain that some may read the case as a way out of paying public adjusters their fees because it seems pretty hard for the public adjuster to prove what portion of a settlement is for the contract amounts of a claim versus something else.

To me, I read the case for other practical lessons:

  1. Public adjusters should attend inspections and not abandoned their work. If they do abandon their work, they can expect not to get paid.
  2. When extra contractual damages get paid, it may be a lot wiser to accept an agreed amount of what the claim portion of the settlement is rather than trying to claim entitlement to the entire amount of the settlement which the law will not allow a public adjuster to collect upon.
  3. Public adjusters should try to work as part of the team to help in the litigation. I often win cases because of the public adjuster’s hard work before suit and then after the litigation is commenced. The policyholder client is usually happy and pleased to see the public adjuster just as interested and invested in a case in litigation, and the disputes as demonstrated above do not occur.

This is a rare case because most public adjusters I know are hard-working and not abandoning their responsibilities. When they do, this case is going to provide guidance as to what a public adjuster can expect for a fee.

Policyholders—-What Are the Four Questions Every Insurance Adjuster Should Be Asked and Then Required To Answer?

Chip Merlin | Property Insurance Coverage Law Blog | October 2, 2019

Speaking at the IAUA Conference in San Antonio yesterday, I suggested that every insurance company should be demanding from their field adjusters and claims managers that they deal with their customers who ask these four questions:

  1. How much am I fully entitled to?
  2. When am I going to get those benefits?
  3. Are you certain that I am not entitled to more, and what are those benefits?
  4. Is there anything you can do to speed up getting what I am owed?

Claims managers, insurance regulators, public adjusters, attorneys for policyholders, and the media should be asking these four questions. These are questions I am demanding our Merlin Law Group attorneys and staff answer to our clients. It is the same question insurance companies should be asking from their own employees serving their own customers.

Does this happen? I would suggest that often it does not. It is almost as if the insurance customer after making a claim is the enemy and the amount demanded is fraudulent.

Claims managers should be asked whether they agree these four questions are the basis for good faith claims handling and that they should be penalized for failing to adhere to them.

I bet a big waffle answers will happen.

Thought For The Day

Criticism in good faith is good. When it’s targeted solely to destruction, I’m not interested.
—Andrea Bocelli

California Supreme Court Concludes Notice-Prejudice Rule Applies To Consent Clauses In First-Party Insurance Policies

Andrew B. Downs | Bullivant Houser Bailey | September 30, 2019

When it comes to insurance coverage, one cue to the court’s feelings about an issue is whether it views that issue as a “technicality.” When that happens, good things rarely result. Another cue is when the case turns on an esoteric legal issue of greater interest to academics than people living their daily lives. Pitzer College v. Indian Harbor Ins. Co. (August 29, 2019) combines both of those situations. The result was not good for the insurance industry.

Pitzer College is one of the Claremont Colleges in Southern California. Claremont bought a policy providing coverage for pollution remediation expenses. During the construction of a new dormitory, Pitzer discovered lead contamination on its property. It promptly began remediation activities. It didn’t notify its insurer until some months later after remediation was complete. The insurer denied the claim based on late notice and breach of the policy’s consent to incur expenses clause. The policy had a choice of law clause making New York law applicable to its interpretation and enforcement.

The California Supreme Court was asked to determine (a)Whether California’s notice-prejudice rule, under which an insurer denying on the basis of late notice must prove it was prejudiced, was a fundamental public policy which should be applied notwithstanding a contractual choice of law clause in favor of New York; and (b)whether that notice-prejudice rule should be applied to consent to incur expenses requirements in first-party policies.

Choice of law is a subject which can make both lawyers’ and judges’ brains hurt, but that’s reflective of the fact that the differences in state law can be outcome determinative. California, like most jurisdictions, will enforce contractual choice of law clauses, like the one in the policy here, provided it isn’t (in layman’s terms) really important that California law applies. In this case, if New York law applied, the insurer would win, while if California law applied, the policyholder might win. Under California’s choice of law jurisprudence, a contractual choice of law provision, like the one favoring New York here, won’t be enforced if the result would conflict with California’s fundamental public policy and if California had a materially greater interest in the determination of the issue than New York.

The notice-prejudice rule requires the insurer to prove the policyholder’s late notice of a claim has “substantially prejudiced” the insurer. Here, the California Supreme Court concluded the notice-prejudice rule was a fundamental public policy of California. Because the case reached the Supreme Court on certification from the federal Ninth Circuit Court of Appeals (a way for the federal courts to solicit the state court’s opinion on a question of state law), the Supreme Court wasn’t able to determine whether California had a materially greater interest in determining these issues than New York did.

In the long run, the second issue addressed by the court may be more important. The policy required notice and, in non-emergency situations, consent to the expenditure of funds by the policyholder. Here, the Supreme Court drew a distinction between third-party liability policies where it agreed “no voluntary payment” provisions were enforceable without a need to prove prejudice and first-party policies where it concluded the notice-prejudice doctrine applied. The court reasoned the insurer’s right to control the defense and settlement of claims is paramount in third-party claims, so breaches of the consent clause are inherently prejudicial, but in the first-party context requiring proof of prejudice before denying coverage is appropriate because the failure to obtain advance consent is not inherently prejudicial unlike the situation in third-party claims.

What does this mean for insurers in their day to day operations? First, having a contractual choice of law clause that selects favorable, or at least predictable, law is not a panacea because if the different California law reflects a fundamental public policy in California, the choice of law clause may be disregarded. Second, in a first-party context (and the policy issued to Pitzer is somewhat unusual in that, at least from the policyholder’s perspective, it provided coverage for the voluntary remediation of the policyholder’s own property), the courts will expect some actual, not theoretical, harm, from the failure to give advance notice and obtain consent for expenditures.