Insurance Certificate Notice of Cancellation Conundrum
Posted by Cary White on Wed, Nov 10, 2010 @ 02:07 PM
Many certificate holders want 30 or more days notice of cancellation in the event of cancellation of the coverage listed on a certificate. Such notice is entirely understandable. Every insurance certificate is only a record of the insurance purchased by the named insured when the coverage was bound (as of the effective date). It is entirely possible that a certificate holder may request, receive and accept a valid insurance certificate only to find out later that the coverage had been subsequently cancelled or the insurance limits had been eroded or exhausted by a claim.
Certificate holders that want notice of cancellation generally specify such notice in their insurance requirements. Traditionally, most have relied on the cancellation clause on the ACORD 25. Many have also requested amendments to the standard cancellation clause despite the fact that the old ACORD 25 certificate of liability insurance clearly stated that it was a matter of information only and did not endorse, amend, or altered the terms of the insurance policies on the certificate.
Prior to the ACORD 25 2009, the ACORD 25 cancellation language was confusing: “SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION DATE THEREOF, THE ISSUING INSURER WILL ENDEAVOR TO MAIL __ DAYS WRITTEN NOTICE TO THE CERTIFICATE HOLDER NAMED TO THE LEFT, BUT FAILURE TO DO SO SHALL IMPOSE NO OBLIGATION OR LIABILITY OF ANY KIND UPON THE INSURER, ITS AGENTS OR REPRESNTATIVES.” There were several fundamental problems with this language:
- it infers that the insurer will endeavor to provide written notice of cancellation to the certificate holder
- it suggests flexibility in the number of days prior notice of cancellation the certificate holder will be entitled by leaving the number of days notice blank
- by not addressing notice of cancellation for non-payment of premium separately, it infers that the certificate holder may be entitled to more notice than the policyholder in such circumstances
Allowing the certificate holder flexibility in the number of days notice, this language invited certificate holders to make other modifications to the cancellation clause including:
- deleting the words “endeavor to”
- deleting the words “,but failure to do so . . . .”
- adding similar obligations to notify in the event of: (1) change in coverage terms, (2) reduction in limits, and/or (3) non-renewal
These changes created work for all and likely provided little additional protection to the certificate holder. Even with the old language, the insurance certificate clearly stated that it was a matter of information only and did not endorse, amend, or altered the terms of the insurance policies on the certificate. If certificate holders wanted and expected notice who did they expect was going to provide it: the insurance carrier or the broker?
Insurance companies are inflexible when it comes to notice of cancellation. The insurance company’s notice obligations are generally contained in a specific endorsement if not the policy itself and are often prescribed by law. Insurance certificates are generally issued by insurance agents and brokers not by insurers. Most insurance companies do not want to receive copies of the insurance certificates issued. If they do not receive or accept copies of the insurance certificates they cannot know of these notice promises being made on their behalf.
Insurance brokers that issue the insurance certificates are also not likely to provide such notice for fear of breaching their responsibilities to their client and jeopardizing their own future relationship with the insured.
The insured is likely not going to provide notice for fear of jeopardizing their relationship with the certificate holder.
Acord changed the cancellation language on the ACORD 25 2009 to read: “SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION DATE THEREOF, NOTICE WILL BE DELIVERED IN ACCORDANCE WITH THE POLICY PROVISIONS.”
The appropriate party to provide notice to the certificate holder is the insurance company. If the certificate holder wants notice from the insurer, the notice requirement should be in writing and part of the contract with the insured and the certificate holder should request an endorsement or other proof of the specific notice required and no longer rely on the insurance certificate for this purpose.
ACORD has written extensively on this issue. Look at this link for more information about the changes in the ACORD cancellation wording.