The Uncertainty of Certificates
Brokers and agents are often asked by their clients seeking to win bids for business to certify coverages that aren’t in their policies, strike language in the standard certificate form to comply with contractual requirements or issue certificates that include additional insureds that are not named on their policies.
As these issues continue to simmer in the marketplace, a majority of states have enacted laws and regulations to limit problems arising from excessive demands, and making it illegal for agents and brokers to list verbiage on certificates of insurance that does not accurately represent what the policy covers.
The new state requirements are due in large part to extensive lobbying efforts by groups like the Independent Insurance Agents and Brokers of America Inc. in Alexandria, Va., said Bill Wilson, the group’s associate vice president of education and research.
“We didn’t do it to be punitive to agents, but rather to give them a reason why they can’t put certain wording on a COI if it misrepresents the policy terms,” Wilson said. “It’s illegal for them to do so, and that’s why they have to refuse.”
Problems often arise when “savvy” landlords, lenders, contractors and rental companies dictate specific insurance requirements that some agents and brokers “are just not familiar with, or are paying much attention to,” he said.
Susan McCaffrey, area vice president, senior client service manager at Arthur J. Gallagher & Co. in Kansas City, Mo., said she has encountered such problems when taking over accounts from other brokerage firms.
For example, a property owner might require a client to provide a workers’ compensation alternate employer endorsement to protect the owner if one of the client’s employees is injured on their property, McCaffrey said.
When the team reviews contracts that have already been signed and see requirements that aren’t currently covered, such as certain pollution, or errors and omissions coverage, they often have to secure that coverage at an additional cost. — Tim Gallagher, director of commercial lines, Marsh & McLennan
Most national carriers are willing to provide the required forms, but smaller or regional insurance companies are not as willing to provide the required forms or will charge a premium.
Barb Wurst, a client executive in the Minneapolis office of Marsh & McLennan Agency LLC, said her team sometimes encounters outdated verbiage cited from forms, such as the 1985 version of the additional insured form that is no longer used in the industry, or erroneous requirements that need to be clarified, such as a requirement to remove the care custody and control exclusion in the general liability policy.
“Reviewing contracts and the certificate of insurance requirements before the contracts are signed is critical to being able to negotiate with carriers,” Wurst said. “If we can review them before our clients sign the contract, it makes everything down the road go smoother.”
When the team reviews contracts that have already been signed and see requirements that aren’t currently covered, such as certain pollution, or errors and omissions coverage, they often have to secure that coverage at an additional cost, said Tim Gallagher, Marsh & McLennan’s director of commercial lines.
“That’s never a fun conversation to have with our clients,” Gallagher said.
Certificates of insurance are merely “snapshots” of policies, and should never be relied upon in the same manner as the actual policy, said Bryson Popham, managing partner in the Annapolis, Md., law firm of Popham & Andryszak.
Moreover, certificates can be rendered obsolete immediately following issuance, because the policies they describe can be cancelled the next day.
“The best a typical certificate can do is state that an insurer will ‘endeavor’ to notify a certificate holder when coverage is terminated, but again, that is little protection for the certificate holder,” Popham said.
“If a claim arises, however, the insurance company is bound only by the policy, not the certificate that someone else amended.” — Bryson Popham, managing partner, Popham & Andryszak
Sometimes an organization, such as a general contractor or a municipality, will require a firm wanting to work with them be named as an additional insured on the certificate, or require that the firm has special liability coverage, he said.
Occasionally, a bidding contractor may add the requested language on their certificate in order to win the contract.
“If a claim arises, however, the insurance company is bound only by the policy, not the certificate that someone else amended,” Popham said. “The best advice is to never amend a certificate — the only results will be bad ones.”
Third parties, such as quasi-governmental agencies, are increasingly using vendors to electronically process certificates of insurance for them, said Ellen Perle, chief counsel for regulatory law and licensing at Aon Risk Solutions in New York City.
Rather than being able to use ACORD forms or manuscript certificates that have been approved by states, brokers are pressured to download data into these vendor systems containing fields requiring only “yes” or “no” responses, and so may not always comport with the actual terms of the policies or the type of information subject to disclosure on certificates.
Sometimes brokers can’t input information in certain fields without first having to guarantee terms.
“On top of that, fees are often imposed on producers just to access the systems,” Perle said. “In addition to the regulatory hurdles and the resources and expense incurred by producers to use these systems, the potential for misuse or mistaken use of the data by others may also present a risk.”
Brokers Cheer NARAB Passage
After many years of intense lobbying, insurance agents and brokers finally have a national licensing clearinghouse.
Legislation signed into law by President Obama on Jan. 12 as part of the extension of The Terrorism Risk Insurance Act (TRIA) established the National Association of Registered Agents and Brokers (NARAB II) to make it easier for brokers to sell insurance on a nationwide basis.
NARAB II, commonly known as NARAB, was established as a permanent organization.
Proponents of NARAB, a nonprofit membership organization to be governed by state insurance commissioners and insurance market representatives, argued that the group will preserve the best of the state regulatory system while adding a more effective licensing system.
“NARAB means a much more efficient and streamlined licensing process for agents and brokers operating in multiple states,” said Brady Kelley, executive director of the National Association of Professional Surplus Lines Offices (NAPSLO).
“NARAB is a tremendous and effective reform while preserving the state-based regulatory system,” he said.
A National System
Keri Kish, NAPSLO’s director of government relations, added that currently its members, or any broker or agent, has to be licensed in their home state, but if they do business in other states they have to obtain a separate license in each of those states as well.
“There will still be stringent requirements to become a NARAB member. But once those requirements are met, it’s just a much more simple online, one-stop shop to get licensed nationally.” — Brady Kelly, executive director of the National Association of Professional Surplus Lines Offices
“With NARAB, what they’ll be able to do is get their license in their home state and then apply to NARAB,” said Kish. “If they’re approved for NARAB membership, then they would be able to operate on a national basis.”
Added Kish: “They would still have to pay the same fees so there’s not necessarily a reduction in fees they would pay to get the licenses, but it’s a huge reduction in the amount of time and ease of being able to operate on a national basis and not having to administer 50 separate licenses.”
Brady noted that if the agent meets the NARAB membership criteria, they will be able to log onto the national system, meet the qualifications, submit a background check and receive a national license.
“There will still be stringent requirements to become a NARAB member,” Brady added. “But once those requirements are met, it’s just a much more simple online, one-stop shop to get licensed nationally.”
John Prible, Washington, D.C.-based vice president of federal government affairs for the Independent Insurance Agents & Brokers of America (IIABA), said NARAB will help companies by increasing their distribution force across the country and it will help consumers by increasing competition.
“But also a point that should not be lost, and it’s actually a very important point, is that now more than ever consumers will not be tied to one location,” Prible said.
“People move around, they move from state to state, people buy second homes in different states and they might have businesses in other states as well. What this will allow them to do is to continue to rely on their trusted insurance agent no matter where their business or property is.
“So we anticipate that NARAB probably won’t go live for about two years. We want to make sure we get it right.” — John Prible, vice president of federal government affairs, Independent Insurance Agents & Brokers of America
“That agent or broker will be able to utilize NARAB in order to operate across state lines without having to get 50-plus different licenses from the various states in which they operate.”
NARAB is expected to increase competition among agents and brokers nationwide.
“The important reason competition will be increased is because now there will be a greater number of agents and brokers that consumers can choose from,” said Prible.
“Consumers don’t just have to choose among the insurance brokers and agents in the place where they’ve moved or where they expand their small business across state lines, they can keep their current broker.
“But if another agent comes in there and offers better service or better value, then they can move to them,” Prible said.
Joel Wood, senior vice president of government affairs for the Washington, D.C.-based Council of Insurance Agents and Brokers (CIAB), noted that “for all the histrionics over state-versus-federal aspects of the NARAB discussion, the reality is that NARAB is simply an administrative mechanism to facilitate multi-state licensure.
“It is a red-tape cutter that will save significant costs for agencies and brokers large and small,” Wood said. “I know of many small firms who employ full-time staff just to maintain all their firm’s non-resident licenses.”
IIABA’s Prible stressed that NARAB will not be up and running overnight.
“The single most important thing that we’re trying to tell our members right now is that even though we’ve been working on this for the better part of a decade and we’ve finally crossed the finish line, this is not just a switch that’s going to be flipped,” Prible said.
“The president is going to have to appoint a board of directors,” Prible said. “This board will have to meet and develop the bylaws for exactly how NARAB is going to work. So we anticipate that NARAB probably won’t go live for about two years. We want to make sure we get it right.”
From Coast to Coast
The 3,920-ton Left Coast Lifter, originally built by Fluor Construction to help build the new Bay Bridge in San Francisco, will be integral in rebuilding the Tappan Zee Bridge by 2018.
The Lifter and the Statue of Liberty
When he got the news, Scot Burford could see it as clearly as if somebody handed him an 8 by 11 color photograph.
On January 30, the Left Coast Lifter, a massive crane originally built by Fluor Construction to help build the new Bay Bridge in San Francisco, steamed past the Statue of Liberty. Excited observers, who saw the crane entering New York Harbor, dubbed it the “The Hudson River Hoister,” honoring its new role in rebuilding the Tappan Zee Bridge over the Hudson River.
Powered by two stout-hearted tug boats, the Lauren Foss and the Iver Foss, it took more than five weeks for the huge crane to complete the 6,000 mile ocean journey from San Francisco to New York via the Panama Canal.
Scot took a deep breath and reflected on all the work needed to plan every aspect of the crane’s complicated journey.
A risk engineer at Liberty International Underwriters (LIU), Burford worked with a specialized team of marine insurance and risk management professionals which included John Phillips, LIU’s Hull Product Line Leader, Sean Dollahon, an LIU Marine underwriter, and Rick Falcinelli, LIU’s Marine Risk Engineering Manager, to complete a detailed analysis of the crane’s proposed route. Based on a multitude of factors, the LIU team confirmed the safety of the route, produced clear guidelines for the tug captains that included weather restrictions, predetermined ports of refuge in the case of bad weather as well as specifying the ballast conditions and rigging of tow gear on the tugs.
Of equal importance, the deep expertise and extensive experience of the LIU team ensured that the most knowledgeable local surveyors and tugboat captains with the best safety records were selected for the project. After all, the most careful of plans will only be as effective as the people who execute them.
The tremendous size of the Left Coast Lifter presented some unique challenges in preparing for its voyage.
The original intention was to dry tow the crane by loading and securing it on a semi-submersible vessel. However, the lack of an American-flagged vessel that could accommodate the Left Coast Lifter created many logistical complexities and it was decided that the crane would be towed on its own barge.
At first, the LIU team was concerned since the barge was not intended for ocean travel and therefore lacked towing skegs and other structural components typically found on oceangoing barges.
But a detailed review of the plan with the client and contractors gave the LIU team confidence. In this instance, the sheer weight and size of the crane provided sufficient stability, and with the addition of a second tug on the barge’s stern, the LIU team, with its knowledge of barges and tugs, was confident the configuration was seaworthy and the barge would travel in a straight line. The team approved the plan and the crane began its successful voyage.
As impressive as the crane and its voyage were, it was just one piece in hundreds that needed to be underwritten and put in place for the Tappan Zee Bridge project to come off.
The rebuilding of the Tappan Zee Bridge, due to be completed in 2018, is the largest bridge construction project in the modern history of New York. The bridge is 3.1 miles long and will cost more than $3 billion to construct. The twin-span, cable-stayed bridge will be anchored to four mid-river towers.
When veteran contractors American Bridge, Fluor Corp., Granite Construction Northeast and Traylor Bros. formed a joint venture and won the contract to rebuild the Tappan Zee, one of the first things the consortium needed to do was find an insurance partner with the right coverages and technical expertise.
The Marsh broker, Ali Rizvi, Senior Vice President, working with the consortium, was well known to the LIU underwriting and engineering teams. In addition, Burford and the broker had worked on many projects in the past and had a strong relationship. These existing relationships were vital in facilitating efficient communication and data gathering, particularly given the scope and complexity of a project like the Tappan Zee.
And the scope of the project was indeed immense – more than 200 vessels, coming from all over the United States, would be moving construction equipment up the Hudson River.
An integrated team of LIU underwriters and risk engineers (including Burford, Phillips, Dollahon and Falcinelli) got to work evaluating the risk and the proper controls that the project required. Given the global scope of the project, the team’s ability to tap into their tight-knit global network of fellow LIU marine underwriters and engineers with deep industry relationships and expertise was invaluable.
In addition to the large number of vessels, the underwriting process was further complicated by many aspects of the project still being finalized.
“Because the consortium had just won this account, they were still working on contracts and contractors to finalize the deal and were unsure as to where most of the equipment and materials would be coming from,” Burford said.
Despite the massive size of the project and large number of stakeholders, LIU quickly turned around a quote involving three lines of marine coverage, Marine Liability, Project Cargo and Marine Hull & Machinery.
How could LIU produce such a complicated quote in a short period of time? It comes down to integrating risk engineers into the underwriting process, possessing deep industry experience on a global scale and having strong relationships that facilitate communication and trust.
Photo Credit: New York State Thruway Authority
When completed in 2018, the Tappan Zee will be eight lanes, with four emergency pullover lanes. Commuters sailing across it in their sedans and SUVs might appreciate the view of the Hudson, but they might never grasp the complexity of insuring three marine lines, covering the movements of hundreds of marine vessels carrying very expensive cargo.
Not to mention ferrying a 3,920-ton crane from coast to coast without a hitch.
But that’s what insurance does, in its quiet profundity.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Liberty International Underwriters. The editorial staff of Risk & Insurance had no role in its preparation.