Certificates of Insurance: Worth The Paper They're Printed On?

Interesting news item from California, about an insurance agent arrested for misappropriating Workers Comp insurance premiums and issuing bogus Certificates of Insurance.  And it reminded me of what a poor vehicle Certificates of Insurance really are for providing reliable information about insurance coverage.

A Certificate of Insurance is often issued by an insurance agent/broker on behalf of a client, to provide required evidence to some third party of insurance coverage being in place. But as this news story illustrates, an unscrupulous agent/broker can issue deceptive or fraudulent Certs that mislead the parties relying upon them. Even in less egregious cases, Certificates can mislead.

For one thing, the standard Certificate form says that the insurer will "endeavor" to inform certificate holders if the policy gets cancelled prior to the expiration date. "Endeavor" means, in this instance, "we'll sort of try to notify you, unless it's inconvenient for us, or if we just screw up, in which case you're S.O.L."  So if the policy runs until December 31st, but the policy gets cancelled August 5th for non-payment, the party relying on the Cert may or may not be informed that the insurance coverage has vanished.

And sometimes, the third party recipients of Certificates are demanding coverage details that are difficult or impossible to actually obtain in the real world. So some insurance agents/brokers will indicate on the Certificate that the policy complies with the unrealistic coverage requirement, even though the policies does not in fact so comply. And the fine print of the Certificate makes clear that if the Cert contradicts the actual policy, it is the policy that determines coverage, not the Cert.

For those interested in further reading on the subject, here's a White Paper prepared on Certificate of Insurance issues.