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Looking for Proof of Insurance? New Form Not Likely to Provide it

Lerch, Early & Brewer's Legal Update

The Association for Cooperative Operations Research and Development, commonly referred to as ACORD, publishes the certificates used by most insurance companies to describe and summarize the insurance coverage provided by an existing insurance policy.

When the ACORD 28 “Evidence of Commercial Property Insurance” form was introduced in October 2003, replacing the ACORD 27 for commercial properties, it was a major improvement. The ACORD 28 was able to be relied on by lenders and landlords because it stated that it was “evidence that insurance as identified below has been issued, is in force, and conveys all the rights and privileges afforded under the policy.” The other ACORD forms contained a disclaimer warning against reliance on the document as evidence of insurance, making the ACORD 28 the only form which offered such evidence. However, when the ACORD 28 was revised in July 2006, all that changed.

The revised form now includes a statement that the form is for “information only” and confers no rights upon the additional insureds, e.g., lenders, landlords, etc. named in the form. Additionally, it now states that it does not amend or otherwise alter the coverage afforded by the underlying policy. The revised ACORD 28 also includes the same disclaimer historically provided within the other ACORD forms that it is not a contract between the insurer and the certificate holder, and does not amend or alter the coverage provided by the underlying policies.

Interestingly, in spite of these disclaimers, some courts have found that the certificates may still be relied upon in certain situations to provide reliable evidence of the insurance.

In Some Cases, Certificates Still Reliable Evidence of Insurance

For example, during a Pennsylvania bankruptcy proceeding, a landlord successfully sued its tenant’s insurance company for failing to pay a claim. The court in this case disregarded the disclaimer and found that an ACORD 27 certificate was sufficient to bind the insurance company. The Pennsylvania Supreme Court ruled that the disclaimer does not allow the insurance company to “negate the existence of any coverage” but rather to refer to the scope of coverage actually provided and “any exclusion from such actual coverage.”

In a Georgia case, a Federal Court determined that it was reasonable for the insured to rely upon a certificate of insurance for its status as an “additional insured” even though the certificate contained a disclaimer.

However, Many Cases Require Viewing Actual Insurance Policy

Still, these types of findings are the exception rather than the rule, and there remain many courts that have upheld the effectiveness of the disclaimer. Courts in Illinois and New York, for example, have ruled that the disclaimer effectively requires insureds to look to the actual insurance policy to confirm the scope of coverage.

Therefore, following the 2006 revisions made to the ACORD 28, many lenders and attorneys do not believe it is advisable to rely on the certificate alone to provide evidence of the insurance. Commercial real estate lenders and others are thus left in a quandary regarding how, exactly, to obtain evidence of the insurance required under their loan documents or other agreements without having to require a copy of the insured’s entire insurance policy.

Take Great Care to Confirm Policy Meets Requirements

With ACORD’s recent wavering regarding the purpose and effectiveness of its certificates, it is likely that even more litigation will ensue, with unpredictable results. In light of this, as a practical matter lenders and landlords must take great care to confirm that a policy meets all of their requirements. One should not rely exclusively on any of the ACORD form certificates of insurance as evidence of the terms of an insurance policy. One alternative is to obtain written assurance from the insurance agent or broker outlining the relevant terms of and parties to an insurance policy. Even better is to obtain a copy of the entire policy (or at least the declaration page of the policy) so that one can definitively determine the scope of coverage, additional insureds and loss payees.

The controversy has not escaped ACORD itself, and the company is currently working with both the insurance industry and the lending industry to determine how best to address the concerns of each. It is likely that the form certificates will be revised yet again; however at this time one can only speculate on what sorts of revisions may be made. In the meantime, since we are less than a year removed from the 2006 amendment to the ACORD 28 certificate of insurance, it remains to be seen how additional courts will treat the watered down ACORD 28. Until the ACORD form is revised or an alternative certificate of insurance promulgated, lenders and landlords must be diligent in ascertaining insurance coverages.

Vicki  Canales is an associate in the firm’s Real Estate Transactions and Commercial Lending groups.  Lawrence G. Lerman chairs the firm’s Commercial Lending Group, and is a principal in the Real Estate Transactions Group. He can be reached at (301) 657-0163 or lglerman@lerchearly.com.

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