Posted by Cary White on Fri, Apr 29, 2011 @ 02:15 PM
Georgia joins the list of states that have enacted bills clarifying the nature of insurance certificates. As of April 27th, it is expected that Georgia Gov. Nathan Deal will sign into law a bill requiring all insurance certificate forms be filed with and approved by the state insurance commissioner. This is a huge win for Acord and for insurance companies. How does this bill and others like it affect you?
Insurance agents and brokers and insurance companies nationwide have had long running problems with certificate holders that want additional coverage and protection through myriad custom modifications to insurance certificates intended to add or amend policy provisions in favor of the certificate holder.
Georgia's insurance commissioner issued a directive in January restating that certificates of insurance are for informational purposes only and confer no rights on the certificate holders outside terms of the policies shown on the certificate. Georgia bill (HB66), sponsored by Rep. Maxwell Howard, clarifies that a certificate of insurance is merely a synopsis of coverage as it exists on the date the certificate is issued and is intended for informational purposes only. The bill also clarifies that certificates of insurance are not insurance contracts nor a binding document that may alter the coverage of one or more of the policies noted on the certificate.
The Georgia law will mirror the efforts by Acord with their new certificate of insurance form noted in previous posts.
CERTIFICATE HOLDERS
Certificate holders beware! It is essential that you carefully review your contract insurance requirements with a licensed insurance professional and a qualified attorney. You may no longer require custom insurance certificates of your own design, unless approved by the insurance commissioner of the state of Georgia, nor may you require modifications to a standard insurance insurance certificate that are not otherwise approved. Your insurance requirements must be clear and enforceable. You will likely need to specify each endorsement that you will require to accompany every valid insurance certificate including additional insured endorsements, waivers of subrogation and notices of cancellation. The more individual documents you require, the more likely there will be errors. You will need to allow for extra time to receive, review and approve the documents you will need. You will also need a means to keep track of what you have received. While you cand take operational steps to allow for more time to get what you want, you should also consider software systems like CertainCert to help you streamline your review and approval process.
INSUREDS
While you will no longer have to fight your insurance agent/broker and insurers for special modifications to insurance certificates, brace yourself, you will still need to fight to get the insurance endorsements that will likely now be necessary. Carefully read the insurance requirements of every contract you are planning to enter into. Do not leave the insurance requirements until the end. You will need to allow for more time to be sure that you receive valid endorsements for additional insured, waivers of subrogation and notices of cancellation from more than one insurance carrier to accompany every insurance certificate. This may mean as many as 12 different pieces of paper to accompany every insurance certificate. Meet with your insurance agent/broker to review their procedures and the likely requirements you will be facing in the future. Together, you should find a way to work together efficiently and avoid insurance requirements holding up your future contracts and work.
Posted by Cary White on Thu, Apr 21, 2011 @ 02:10 PM
Ann Hickman, CPCU, ARM, CRIS and Conference Curriculum Director for the International Risk Management Institute completed a review of automated certificate tracking systems. CertainCert was one of the select systems reviewed.
CertainCert is pleased to be recognized as a leader among insurance certificate tracking systems. CertainCert is also pleased to be singled out for our experience, constant modifications, easy of use and low cost.
The results of her review were published in the March 2011 supplement to CONSTRUCTION RISK MANAGEMENT. For copies contact the International Risk Management Institute, Inc. in Dallas, Texas at (972) 960-7693 or on the web at www.IRMI.com.
Posted by Cary White on Fri, Feb 18, 2011 @ 02:07 PM
Are you sending out letter after letter requesting insurance certificates, re-requesting certificates and re-re-requesting insurance certificates? Are you frustrated with your results? If you are serious about insurance certificate tracking and insurance certificate management, certificate of liability insurance request letters are essential. Any casual review of the web will surface any number of sample letters from well intentioned businesses addressing their specific industry, business style and goals. Most are well intentioned letters politely requesting an insurance certificate and include a highlight of one or more essential provisions. These are a recipe for disaster. You will continue sending out letter after letter like blasts from a hose. Some will hit their mark. Most will not.
Insurance certificate tracking success necessitates a moment of reflection and a well thought out strategy when it comes to effective certificate of liability insurance request letters.
Insurance Requirements – Risk Profiles
You must consider first what your insurance requirements will be. Will you need different insurance requirements for different purposes? Your requirements for a small concrete cutting contractor may be entirely different from your requirements for a larger curtain wall subcontractor. Likewise, you will have different insurance requirements for architects, engineers and other project professionals than you would for a subcontractor on site. You should consider different risk profiles by type of vendor, size of vendor, and project duration/complexity as appropriate. What are the essential requirements you must have for each risk category? What are desirable, but less essential requirements that you do not intend to follow up on? These are essential questions to help you coordinate your insurance certificate management software whether you use a online insurance certificate tracking software solution or an enterprise solution. Your tracking software results must be contemplated in advance. Likewise, it would be best if your insurance certificate tracking software and your contract management software or other risk management software could be coordinated up front to minimize potential conflicts.
Insurance Requirements – Communication/Preparation
Insurance compliance should not be a mystery. Your certificate of liability insurance request letter should not be the first time someone is made aware of your insurance requirements. To ensure the best results, it is essential that all parties be familiar with your insurance expectations before finalizing a contract. Your requirements must be clear, reasonable, verifiable and enforceable. You may want to consider insurance requirement compromises in advance to help smooth your contract negotiations, to reduce conflict, maximize consideration instead of capitulation, and ensure compliance in the future. Too often lenders share only their boilerplate insurance requirements in advance of loan considerations only to change their requirements later. Such poor preparation and communication leads to inordinate stress on all parties and often avoidable additional expense. If possible, you should communicate exactly what is required for insurance compliance. Your requirements should also be carefully reviewed by a qualified attorney and one or more insurance professional to be sure that your requirements are not in conflict with insurance law or the market.
Insurance Requirements – Timing
You also must consider when you need the insurance certificate. If your insurance requirements are well thought out and known before bidding, it may be best to require a satisfactory insurance certificate to accompany qualified bids. Bids without a satisfactory insurance certificate should be considered suspect and likely to be a concern in the future. Conversely, requiring an insurance certificate before work starts or before payment to your vendor is an invitation for delay, stress and may put your work in jeopardy.
Insurance Requirments – Tracking
Whether you are using sophisticated insurance certificate tracking software, contract management software or other risk management software, it is essential that you are prepared for the number of articles you will need including but not necessarily limited to insurance certificates, additional insured endorsements, waivers of subrogation, and notices of cancellation or other amendments. Since the change of the Acord 25 form last year, the number of forms you may need could be more than 10. You will need to have a place for each and a process to review/approve each.
Certificate of Liability Insurance Request Letters
Your certificate of liability insurance request letters should be thought of as a series of letters together. The series should include your first letter, your follow up letter(s), and compliance letter(s). They should be consistent in style and tone. If you are using insurance certificate tracking software, contract management software or other risk management software, it is best to mention this in your correspondence to reinforce that your requirements are uniform and objective and that you have a process to evaluate what you receive. Every letter you send out should include a complete copy of your insurance requirements, when you want the insurance certificate and highlight the consequences if you do not receive what you need when you need it.
Posted by Cary White on Thu, Feb 17, 2011 @ 03:02 PM
Occurrence coverage is the norm for general liability insurance policies today. Subject to the terms and conditions of the insurance policy, coverage will respond to any incidents that occurred during the policy period regardless of when the claim is reported. In general, coverage specifically for prior acts is not needed because it is already covered as the date of the occurrence is the trigger for the coverage not the date of the work or act. Likewise, with some exceptions, tail coverage is not necessary because coverage exists for occurrences during the policy period regardless of the date the claim is reported. While these are generally true, care must still be taken because select insurers endeavor to limit their risk by adding prior loss exclusions and sunset clauses to select general liability policies.
Unlike general liability insurance, claims made coverage is the norm for professional liability policies. Claims made coverage is subject to two essential coverage triggers: (1) the date of the occurrence, and (2) the date the claim was made. Claims made policies will only respond to claims first made during the policy period provided the loss or damage first occurred after the retroactive date. Unsophisticated or budget conscious professional may purchase professional liability coverage with a retroactive date equal to the inception date of the policy. Unless they purchased tail coverage on their prior policies, these professionals have purchased coverage that does not cover their past work. The only coverage they have is for incidents which first occurred and were reported during the policy period.
Insurance Requirements
Unfortunately, there are no standard insurance certificate forms for professional liability insurance coverage so your insurance requirements are your main line of defense. It is essential that you review your professional liability insurance coverage requirements with a qualified attorney and insurance professional to address your claims made coverage concerns. Your requirements should specify several things: (1) retroactive date must predate the work being done for you, (2) coverage must remain continuous through the work being done for you, (3) coverage must remain in force for a period of time beyond completion of the work, and (4) the retroactive date on future policies must predate the work being done for you.
Insurance Certificate Tracking
Because there are no standard insurance certificate forms for professional liability you may be best served by requesting and reviewing a complete copy of the insurance policy. Whether that is practical or not, it is essesntial that you require that any insurance certificate or other evidence of insurance being provided should clearly show:
- claims made or occurrence coverage
- retroactive date, if applicable
- tail coverage period, if applicable
Posted by Cary White on Wed, Feb 16, 2011 @ 02:07 PM
Unlike general liability policies where insurers control defense and settlement without the consent of the insured, nearly all professional liability policies do not allow the insurance carrier to settle any claim without the agreement of the insured. This provision has evolved to protect the reputational harm of the insured. The hammer clause is a policy provision intended to encourage the consent of the insured to reasonable settlement offers suggested by the professional liability insurer. Hammer clauses are common on professional liability policies. They can vary in scope and severity. Every hammer clause addresses the indemnity and defense responsibilities of the professional liability insurer if the insured does not consent to a settlement suggested by the insurer. In most cases the insurance company will not pay for any indemnity amount greater than the amount of the proposed settlement. Likewise, the insurance company is not responsible for paying any further defense expenses. While variations do exist in some policies, the insured should expect to be responsible for 100% of any indemnity amount and defense expenses after rejecting the settlement offer suggested by their professional liability insurance carrier. Some insurance policies may not contain a hammer clause, but beware, these same policies may not contain a consent to settle provision either.
Insurance Certificate Tracking
Regrettably, these provisions are common to professional liability insurance policies but not typically referenced anywhere on insurance certificates or other proof of insurance reasonable for insurance certificate tracking and monitoring. Requesting a copy of the entire insurance policy is possible, but problematic and cumbersome. Furthermore, what should you do if you find that the consent to settle and hammer clause are not satisfactory to you? Alternative clauses or insurers more palatable to you may not exist. Choosing not to contract with someone based on these provisions may also be excessive.
Insurance Requirements
Your insurance requirements are likely the best remedy. If you require professional liability insurance from people and firms you business with, it is essential that your insurance requirements address these two provisions if you intend to rely on the professional liability coverage provided by such firms. Do these firms have sufficient resources to pay for excess defense and/or settlement expenses if they do not agree to the settlement offer proposed by their insurance company? With a qualified attorney, you should consider if your insurance requirements should contain a provision that addresses both consent to settle and hammer clauses. Can you require participation and approval of any settlement negotiations for third party claims? Should you make it clear who is responsible if the insurance carrier will not pay for excess indemnity and defense expenses? Should you require that the professional secure a surety bond or other financial guarantee for a reasonable amount for such future expenses before the professional may waive their consent to settle? Your insurance requirements should be modified accordingly to address these and other issues.
Posted by Cary White on Tue, Feb 15, 2011 @ 02:07 PM
Do you request an additional insured endorsement from professionals that work for or with you? Have you experienced trouble obtaining additional insured endorsements from professionals?
It is common practice to request an additional insured endorsement from General Liability insurers and there is a great body of law and experience surrounding those requests. Professional Liability insurance is different. In most cases, underwriters do not allow Additional Insured endorsements on professional liability policies. Getting an Additional Insured endorsement can be vexing particularly for construction projects or other circumstances involving municipalities other government agencies, lenders and others accustomed to being named as an Additional Insured on all liability policies. Why is it so hard to get an Additional Insured endorsement from a professional liability policy?
Essential Reason
Professional Liability coverage is triggered by an allegation of negligence regarding the rendering or failure to render professional services. Parties seeking to be added as an Additional Insured to a Professional Liability policy are generally not a professional firm or providing professional services. Instead, such parties are looking for defense and coverage for suits brought against them. If allowed, such parties would be expected to tender claims for defense to professional liability insurers whether or not an allegation of professional negligence surfaces. Such defense claims would likely be denied by the professional liability insurer as these exposures are contrary to the underwriter's expectations and the policy wording.
Additional Reason
Regardless of whether it is reasonable or not, underwriters are also unwilling to add professional and non-professional parties seeking to be added as an Additional Insured for their passive negligent acts related to the covered professional services. Underwriters argue that they cannot review, evaluate and price such exposures and would prefer that each party obtain their own professional liability insurance or write a single policy for all parties related to a single project or endeavor.
More Reasons
Here are several reasons why you should be reluctant to agree to or ask for an Additional Insured endorsement on a professional liability policy:
- Insured vs. Insured
An underlying principle of all insurance is a prohibition of coverage for claims made by insured parties against other insured parties. If two parties have an insurable interest in the work, underwriters believe the parties should work together to resolve the issues instead of suing one another. Insurers especially do not want to fund lawsuits between one insured party against another insured party. Most policies have some form or insured versus insured exclusion precisely for this reason. If an Additional Insured is allowed, most insured versus insured exclusions would void coverage for the Additional Insured for damages against the insured related to their professional acts covered under the policy. If a party is successful in obtaining an Additional Insured endorsement in any circumstance, it is essential that the party should also require that the insured versus insured exclusion be modified to except the Additional Insured from the standard provision to ensure coverage. Some underwriters will agree to do this, others will not. Underwriters that will not generally believe that the parties have a choice: Do you want defense for something that you did not do, or do you want the insured to have resources to make you whole, should they cause you harm?
- Defense Included In the Limits
Most professional liability policies have defense included within the policy limits, not in addition to those limits. This means that all claims investigation and legal fees spent reduce the policy limit. If you have a $1,000,000 policy limit and $100,000 is spent on claims and defense expenses, then there is only $900,000 remaining to pay any claims. Such policies are commonly called a wasting limit policy. If other defense resources are available to the Additional Insured outside of the professional liability policy, the Additional Insured may actually be reducing the available coverage under the professional liability policy by insisting on a separate defense. The primary intent of the professional liability policy is to provide coverage for the insured for claims arising from the rendering of or failure to render professional services, contractual liability defenses for Additional Insureds will effectively reduce the policy limits and leave less for actual damages.
Exceptions To Every Rule
While most underwriters have a hard and fast rule against extending AI status of course there are exceptions to every rule. There are some types of professional liability where the need for Additional Insured status by the clients of an insured are so compelling that carriers will provide the endorsement. Such clients include government agencies, municipalities, public authorities and instances involving healthcare facilities or environmental contractors and consultants. Healthcare and environmental liability professional liability policies may also include general liability coverage components and underwriters that specialize in these areas are likely more familiar and comfortable with Additional Insured requirements.
There are other circumstances when underwriters may provide AI endorsements on a case-by-case basis. Circumstances where there is a very clear vicarious liability exposure to third party because the additional insured is hiring the professional to do 100% of the professional work or the professional is doing the work in the name of the additional insured as in design build projects. In these circumstances, the additional insured is hiring the insured and the exposure to the additional insured is the work of the insured. Nevertheless, in these instances it is more likely that the additional insured will be sued for the actions of the insured. Most underwriters can be persuaded to extend additional insured protection to the additional insured in these rare circumstances.
Conclusion
Regardless of your circumstances, it is essential that you consider professional liability additional insured requests very carefully. As outlined above, underwriters generally will not agree to add any parties as an additional insured except in rare circumstances. There are philosophical reasons and practical reasons for their unwillingness. If you believe your circumstances warrant an exception consider carefully if your circumstances or unique to a specific project or event or necessary for all of your operations. If you must have an exception, it is essential that you consult both a qualified attorney and insurance professional to weigh your circumstances and to be sure that your contract language is appropriate whether you are requesting an additional insured endorsement or being requested to provide one. It is also essential that your request be accompanied by a request to amend the insured v. insured exclusion to avoid negating the AI protections you seek. Your legal and insurance professionals will also be able to help you make the case with underwriters why an exception is necessary and to outline steps you have taken to minimize underwriter risk.
Posted by Cary White on Thu, Feb 10, 2011 @ 02:07 PM
Unfortunately most insurance certificates you receive will have one error or another. Many certificates will have several errors. Some errors will be caused by failure of communication on your part. Some errors will be caused by the failure of one or more parties to share your insurance requirements with their respective insurance agent(s) and/or broker(s). Some errors are the result of routine or shortcuts on the part of the insurance agent or broker. Some errors will be a consequence of the insured not having the insurance your requirements specify. Presuming you have taken extraordinary steps to ensure the best communication of your insurance requirements and that they are reasonable, what should you do about the other error causes?
HISTORY OF PASSIVE TECHNIQUES TO ENFORCE INSURANCE CERTIFICATE COMPLIANCE
Over many years, it still amazes me that certificate holders have not varied their arsenal to combat insurance certificate issuance errors. Generally, the only steps taken fall into one of three categories:
- delay in contract
- delay in start
- delay in payment
Each of these is a passive inducement which may harm one or both of the contracting parties more than persuade greater attention to detail regarding insurance certificate issuance. If you are a contractor and want your concrete subcontractor to start work today so your schedule does not slip, is it in your best interest to delay the start of the subcontractor’s work for an insurance certificate. What would be the dollar impact of such a delay on the general contractor, on the subcontractor, and on the subcontractor’s insurance broker. Likewise, would it be a good idea for the contractor to allow the subcontractor to start work without a signed subcontract simply because an appropriate insurance certificate has not been received. Furthermore, what is the impact to the general contractor, subcontractor and others if payment is delayed until an appropriate insurance certificate has been received?
None of these three approaches address or discourage multiple failed insurance certificates more than a single failed insurance certificate. Keeping with the same example above, what is the cost to the general contractor and their team to review multiple copies of the same insurance certificate over and over again with few if any changes?
What is the cost to a developer if their loan is delayed because their insurance certificates do not meet the letter of the lender’s requirements. What is the cost to the tenant if the landlord will not allow them to move in until an appropriate certificate of insurance is received and approved?
CREDIBLE ACTIONABLE PAIN ESSENTIAL FOR SUCCESSFUL INSURANCE CERTIFICATE MANAGEMENT
Insurance certificate management success necessitates a more active approach including a direct approach as well as contingent plans when satisfactory insurance certificates are not possible. It has to be understood that there are two types of errors that need to be addressed: Inattentiveness and Coverage Shortfalls.
- Inattentiveness
Because there is a real cost to review and evaluate every insurance certificate that is received, whether it is correct or not, it is entirely appropriate to pass this cost on to the offending party. It is essential that your insurance requirements are clear, reasonable and actionable. Presuming that they are, then it may also be appropriate to insert a penalty for incorrect certificates in addition to the passive action alternatives common in the industry. For the best results, it may be best to allow everyone to have one non-compliant insurance certificate, but then charge a reasonable fee for every non-compliant insurance certificate received thereafter, such as $100 per certificate, or even $100 for the second certificate, $200 for the third certificate and so on increasing $100 for each non-compliant certificate received thereafter. Whatever penalties you deem appropriate, it is essential that they are expressly stated in the contract. If in the contract, the insured can then pass these penalties directly to their insurance agent or broker to hold them accountable for reissuing the same or otherwise non-compliant certificate each time thereafter if the problem is there.
- Coverage Shortfalls
No matter how clear, reasonable and actionable your insurance certificate requirements may be, there will still be some qualified parties with whom you want to do business but cannot meet all of your insurance requirements. It is essential for you to review each of your insurance requirements with your insurance team and insurance professionals and determine appropriate compensation for your additional risk should one or more of your requirements not be satisfied. These can be flat amounts such as $100 for no Workers’ Compensation Waiver of Subrogation or a percentage of the contract amount if the insured cannot add one or more of the parties required as an additional insured on the appropriate endorsement form(s). These penalties should be reasonable and objective guidelines to allow you room to negotiate with the non-compliant parties to expedite the work and maximize goodwill. Unlike the penalties for inattentiveness suggested above however none of these should be in the contract because you do not want to suggest that exceptions can and will be made routinely.
Posted by Cary White on Wed, Feb 09, 2011 @ 02:07 PM
A.M. Best Rating
While some require that all insurers be an Admitted insurer, a better gauge for determining the financial strength or an insurance company is likely the Best’s Credit Rating reported by A. M. Best Co. A.M. Best Co. was founded in 1899 and was the first independent rating agency in the world to evaluate and report on the financial strength of insurance companies. Best’s Ratings are recognized as the leading independent objective insurance company evaluating entity recognized by insurance professionals. Each insurance is subjected to the same rigorous criteria intended to assess their financial strength. A.M. Best then assigns each company three types of ratings: Best’s Financial Strength Ratings; Best’s Insurer Credit Ratings; and Best’s Debt Ratings. Every A.M. Best evaluation is an independent opinion, based on A.M. Best’s comprehensive quantitative and qualitative evaluations of a company’s balance sheet strength, operating performance and business profile. While no A.M. Best evaluation is a warranty of a company’s strength or ability to meets its obligations to policyholders or other financial obligations they are essential tools for insurance industry professionals and those that rely on insurance to weigh the strength of the insurance companies on which they rely.
Best’s Financial Strength Ratings are the most important to insurance certificate holders. Each Best’s Financial Strength Rating consists of a Financial Strength Rating and a Size Rating based on policyholder reserves. Best’s Financial Strength Ratings are easy to validate online or through your insurance certificate management software. Most insurance professionals suggest a minimum best rating of A- (Financial Strength) VII (Financial Size). Details about the Best’s Financial Strength Ratings can be found here.
Insurance Certificate Management Considerations
If you require Admitted insurance, you would need to check the admitted status of every insurer on every certificate for the subject state where the risk is located, not the state of the insured. Knowing that Nonadmitted insurance is a legitimate alternative to Admitted insurance for many classes of business, it would also stand to reason that you would have to have a uniform standard procedure for reviewing and approving Nonadmitted insurers and/or Gap insurers should the issue arise, which may include the review of each to determine if they are on the LESLI List or other list of approved Nonadmitted insurers. Clearly, this would likely require significant additional review and work than protection.
Because Nonadmitted insurance carriers play an important role inside and outside the California marketplace, certificate holders should require a minimum Best’s Rating for all insurers. This . They provide coverage that would be otherwise unavailable or with inferior limits. The buyer should be aware of market conditions and make sure that they are buying a policy from a reputable carrier by investigating the carrier’s AM Best financial rating (available online at www.ambest.com). Many insurance certificate management software systems include Best’s Ratings criteria to automate the review and management of these criteria.
Whether you require Admitted insurance or not, or a minimum Best’s Rating, it is essential that your insurance requirements specify that all insurers on every certificate be listed as they are listed by A.M. Best. Too often brokers and agents abbreviate the name of the insurer or list the group name. If the insurer is Lexington Insurance Company, that is what should be put not American International Group or AIG. Likewise, Navigators could mean Navigators Insurance Company or Navigators Specialty Insurance Company of which one is Admitted and the other is Nonadmitted.
Posted by Cary White on Tue, Feb 08, 2011 @ 02:07 PM
Far too often we encounter insurance requirements that require all insurers be Admitted. Presumably such requirements are intended to provide the certificate holder some comfort about the security of each insurer. Conversely, Nonadmitted insurers must provide less or insufficient security. While financial security of each insurer may be the goal, any additional protections afforded to the certificate holder by Admitted insurers are minimal at best and may be counterproductive.
Admitted Insurers
Admitted insurers are subject to modest financial oversight by the states where they are admitted. The level of oversight varies from state to state.
Admitted insurers must file their rates, policy forms and endorsements to each state insurance department for specific review and approval. This process is long, complicated and expensive. With few exceptions, Admitted insurers must use their filed rates, policy forms and endorsements without deviation.
In some states Admitted insurers may be covered by a state administered guarantee fund. In California this fund is called the California Insurance Guarantee Association (CIGA). CIGA provides some protection for policyholders should an Admitted insurance carrier be declared insolvent. CIGA has three separate funds organized by line of business that cover (1) workers' compensation claims, (2) homeowners and automobile claims (including personal injury), and (3) all other claims (e.g., products liability and commercial property and liability). Claims and/or statutory benefits pursuant to a policy under categories (2) and (3) above are limited to no more than $500,000.
The DOI maintains a list of Admitted insurers on line here.
Nonadmitted Insurers
Admitted insured do not meet the specific needs of many insurance buyers. Risk classes with high loss experience or potential, limited population, or with rapidly evolving legal circumstances are generally uninsurable by traditional Admitted insurers. Nonadmitted or “Surplus Line” insurers are typically the only option for such risks which are unusual, unusually large or when coverage is not available from Admitted insurers. Specialty risks such as general liability insurance for some classes of business like contractors, earthquake insurance and most professional liability insurance are and among those not written by Admitted insurers. Such risks have been written by nonadmitted insurers since the 1800’s. The Underwriters at Lloyds of London are famous for being Nonadmitted insurers and for the specialty risks that they write. Other Nonadmitted insurers are US and Foreign insurers that have elected to be Nonadmitted in one or more states to write specialty risks. Most Nonadmitted insurers are members of larger insurance groups that may contain one or more admitted carriers as well.
Nonadmitted insurers are not required to file their rates, policy forms or endorsements for review and approval. Consequently, because of their pricing flexibility and freedom to amend their forms to meet the changing needs of their policyholders and risk environment.
Nonadmitted does not necessarily mean unregulated. In California, Nonadmitted still must be reviewed and approved by the California Department of Insurance (DOI) for their financial stability, reputation and integrity. Every approved Nonadmitted insurer in California is an Admitted insurance carrier in a state or domicile other than California. Each Nonadmitted insurer must maintain a minimum of $15 million in capital and surplus at all times; have three (3) years of experience; have a valid license to transact insurance in their domicile state; file financial information with the CDI; and adhere to specific capitalization, investment and solvency standards established under the California Insurance Code. Approved Nonadmitted insurers in California can be found on California’s LESLI List. LESLI stands for "List of Eligible Surplus Line Insurers" which is a list of nonadmitted insurers approved by the Commissioner for placements of California surplus line risks. The DOI issues an updated List of Eligible Surplus Line Insurers (LESLI) list twice a year in June and December. Copies of the LESLI List are available online at the link above or by calling the Surplus Line Association of California (SLA) at (415) 434-4900 or the DOI at (800) 927-HELP.
Nonadmitted insurers are not covered by the state administered guarantee funds like California Insurance Guarantee Association (CIGA). Policyholders of Nonadmitted insurance policies, their additional insureds and third parties are most likely not eligible for protection from any state administered guarantee fund.
Finally, Nonadmitted insurers do not pay premium taxes. Policyholders of Nonadmitted insurance policies must pay a separate premium tax directly to the state.
Gap Insurers
A Gap insurer is a Nonadmitted insurer that is not found on California’s LESLI List, but can be used for placements of California surplus lines risks on a limited basis subject to certain specific conditions. In general, Gap insurers can be used only with the most sophisticated insureds and only in circumstances when multiple insurers are needed for 100% of the risk and only if eighty percent (80%) of the risk is placed with approved Nonadmitted or Admitted insurers and when unlisted insurers do not represent a disproportionate portion of the lower layers of coverage. Detailed Gap insurer placement conditions and requirements can be found at California Insurance Code Section 1765.1(k).
Additional Considerations
First and foremost, it must be understood in most states, it is required by law that every insurance broker endeavor to place each insured with an Admitted insurer. Nonadmitted insurers write risks that Admitted insurers cannot or will not write. Some states such as California and Florida have specific procedures that must be followed if insurance is placed with a Nonadmitted insurer.
Policy forms and endorsements reviewed and approved by any department of insurance do not guarantee that they are better or more broad than coverage procured from a Nonadmitted insurer.
Any state insurance guarantee fund, if applicable, is likely much lower than the minimum insurance limits required.
Finally, apart from California and select other states, there is no uniform way to determine if an insurer is admitted in any particular state.
Posted by Cary White on Mon, Jan 24, 2011 @ 02:07 PM
Insurance certificate management is more than a quick review of a certicate or checking a box. Whether we like it or not, it is essential that a knowledgeable person read every certificate and attachment carefully to be certain that the required insurance coverage is being provided. This is especially true of additional insured endorsement you receive with your insurance certificates.
Most insurance and legal professionals recommend that your written construction agreement clearly requires an additional insured endorsement (AI) in the name of the project owner. Many also recommend that such AI requirement be extended to the architect, construction manager and other parties. If the additional insured endorsement is the ISO CG 20 33 blanket AI endorsement or equivalent, it is important to note that the endorsement says, ". . .Who Is An Insured is amended to include as an insured any person or organization for whom you are performing operations when you and such person or organization have agreed in writing in a contract or agreement that such person or organization be added as an additional insured on your policy . . . " The International Risk Management Institue (IRMI) reports that one trial court is interpreting this clause to mean that only the party with which the insured is directly contracting is granted insured status. If this opinion were to be widely held, it would result in an enormous unintended coverage gap for contracts that require additional insured status for parties not directly contracting with the insured. The Big "I" national Technical Affairs Committee is pursuing this issue with ISO now. Contact IRMI or the Big "I" for additional information on this problem, the court case and efforts to resolve it.
In the meantime, it is essential to remember that any efforts with ISO to correct the problem will not affect proprietary blanket additional insured endorsement forms currently in use by many insurers and the ISO forms in use now.