Here's a quiz. We all know that standard Association for Cooperative Operations Research and Development (ACORD) or Insurance Services Office, Inc. (ISO), certificates contain disclaimers saying they do not "amend, extend or alter" the underlying policy. Usually that means that representations of coverage made in a certificate would not trump policy terms or correct underlying coverage deficiencies. But under what circumstances would certificate disclaimers actually benefit the certificate holder?
The answer, as shown by at least two court cases, is when the insurer tries to take advantage of manuscript language in the certificate to limit or restrict the policy's coverage in some manner.
Charter Oak Fire Ins. v. Lexington Ins.
In one of those cases, Charter Oak Fire Ins. Co. v. Lexington Ins. Co., No. M2002–01752–COA–R3–CV, 2004 Tenn. App. LEXIS 150 (March 2, 2004), a fire destroyed a Chili's restaurant in Nashville, Tennessee. After the fire, Chili's exercised its right to terminate the long-term lease. The building owner was named as an additional insured (AI) on a property policy issued to Chili's covering that location, and Chili's insurer paid the owner for the fire loss. The owner submitted an additional claim for loss of rental income, but Chili's insurer denied it.
The owner's property insurer paid the rental income loss, then brought this subrogation action against Chili's insurer for recovery under a "rental income extension." Its theory was that, since the building owner was an AI, he was entitled to the rental income coverage, and Chili's insurer's coverage should have been primary.
Chili's insurer argued in part that the certificate of insurance limited coverage because it contained a note that the AI was being added for physical damage only, not rental income. The appellate court disagreed because the certificate contained disclaimers saying it was issued "as a matter of information only," and that it "does not amend, extend, or alter the coverage afforded by the polic[y]." "Because the certificate has no effect on the coverage afforded by the policy," wrote the court, "we must look to the policy itself to determine whether loss of rental income was an item included in the scope of [the AI] coverage." Looking to the terms of the policy, the court determined that the owner's AI status was not limited in any way. The court said:
the unambiguous language of the ... rental income extension ... cover[ed] economic loss in the form of lost rental income. As an additional insured, this coverage would apply to [the owner] as no attempts were made to limit this coverage for the sole benefit of [Chili's].
Therefore, the certificate could not be used to restrict the building owner's coverage.
J.A. Jones Constr. v. Hartford Fire Ins.
In the other case, J.A. Jones Constr. Co. v. Hartford Fire Ins. Co., 269 Ill. App. 3d 148, 206 Ill. Dec. 728, 645 N.E.2d 980 (Ill. App. 1st Dist. 1995), the court decided that the subcontractor's policy provided additional insured coverage for the general contractor's sole negligence. The subcontractor's insurer argued that the scope of coverage was limited by a typed statement on the certificate saying the general contractor was an additional insured "to the extent of [the subcontractor's] negligence." The appellate court disagreed because there was disclaimer language saying the certificate "does not amend, extend or alter the coverage afforded by the policies below." Therefore, the certificate could not be used to restrict the general contractor's coverage.
Conclusion
Maligned and misunderstood, insurance people tend to view certificates as little more than a nuisance. Yet, every so often, standard certificates can save the day.
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