the big change in the acord certificate massachusetts rims chapter spring conference 27 march 2014

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The BIG Change in The ACORD Certificate Massachusetts RIMS Chapter Spring Conference 27 March 2014

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Page 1: The BIG Change in The ACORD Certificate Massachusetts RIMS Chapter Spring Conference 27 March 2014

The BIG Change in

The ACORD Certificate

Massachusetts RIMS ChapterSpring Conference

27 March 2014

Page 2: The BIG Change in The ACORD Certificate Massachusetts RIMS Chapter Spring Conference 27 March 2014

The BIG Change in

The ACORD Certificate

Disclaimer: The views and opinions expressed here are not those of Lexa International and are not intended to endorse, promote, or discredit any particular insurer or their practice (s).

04/21/23 David S. Hershey© CPCU, CRM, CRIS, AMIM, ARM, MLIS 2

Page 3: The BIG Change in The ACORD Certificate Massachusetts RIMS Chapter Spring Conference 27 March 2014

The BIG Change in

The ACORD Certificate• 7+ Countries, 25+ States• $5.5B annual sales (2013)• Petroleum wholesale & distribution (international)

2B+ gallons of petroleum, 100BCuFt Nat Gas, 17 Terminals• Municipal water treatment equip. mfg. (international)

Treats 7T+ gal / year• Residential water treatment systems mfg. and dist. (international)• Medical device manufacturing & distribution (international)

Razors, Machine knives, Syringes, Hand held cutting tools• Medical device manufacturing (international) knee replacements • Lumber recycling (international)

Mount Vernon, Truman Library, home of James Madison• College student housing (regional)• Business Application Software Development (Italy / USA based)

04/21/23 David S. Hershey© CPCU, CRM, CRIS, AMIM, ARM, MLIS 3

Page 4: The BIG Change in The ACORD Certificate Massachusetts RIMS Chapter Spring Conference 27 March 2014

The BIG Change in

The ACORD Certificate

Typical Contractual Requirement for NoC“Non-renewal or cancellation of polices described above will be effective only after written notice is received by [Certificate Holder] from the insurance company thirty (30) days in advance of any such non-renewal or cancellation.”

04/21/23 David S. Hershey© CPCU, CRM, CRIS, AMIM, ARM, MLIS 4

Page 5: The BIG Change in The ACORD Certificate Massachusetts RIMS Chapter Spring Conference 27 March 2014

The BIG Change in

The ACORD CertificateReasons for the NoC

•Enables benefactor to:– Better select deductibles – Better select SIRs– Improve loss ratios / renewal terms / rates– Obtain a secondary assurance on creditworthiness

of Insured – Provide a level of assurance to other customers of

the benefactor, the presence of insurance 04/21/23 David S. Hershey© CPCU, CRM, CRIS,

AMIM, ARM, MLIS 5

Page 6: The BIG Change in The ACORD Certificate Massachusetts RIMS Chapter Spring Conference 27 March 2014

The BIG Change in

The ACORD Certificate

Who is ACORD?Regular membership is open to any organization that meets the criteria specified below:

•Any organization engaged in the business of underwriting, and/or selling, distributing or otherwise providing life, annuities and health; property, casualty and surety; or reinsurance.

•Any nonprofit trade association representing individuals or firms, producers, brokers, agents or intermediaries engaged in the business of underwriting, and/or selling, distributing or otherwise providing insurance products or other financial products or services.

Page 7: The BIG Change in The ACORD Certificate Massachusetts RIMS Chapter Spring Conference 27 March 2014

The BIG Change in

The ACORD Certificate

• Effective 10/1/2009• Modification to the Insurance Cert• Removal of the NoC to Certificate

Holder

Page 8: The BIG Change in The ACORD Certificate Massachusetts RIMS Chapter Spring Conference 27 March 2014

The BIG Change in

The ACORD CertificateWhy the Change?

“The wording at the top of ACORD 27 and ACORD 28 was changed at the request of a large insurers association, an agents association, and several individual insurers. The reason for these changes was because of an inaccurate perception among individuals and organizations not in the insurance business that somehow the form itself conveyed rights. In fact, only the policy can convey rights under the policy. The new wording across the top of the form simply states facts.”

04/21/23 David S. Hershey© CPCU, CRM, CRIS, AMIM, ARM, MLIS 8

Page 9: The BIG Change in The ACORD Certificate Massachusetts RIMS Chapter Spring Conference 27 March 2014

The BIG Change in

The ACORD Certificate• Old language: (ACORD 27)“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 representatives.”

04/21/23 David S. Hershey© CPCU, CRM, CRIS, AMIM, ARM, MLIS 9

Page 10: The BIG Change in The ACORD Certificate Massachusetts RIMS Chapter Spring Conference 27 March 2014

The BIG Change in

The ACORD CertificateOne commonly attempted solution was to “modify the endeavor to” language to read:“Should any of the above described policies be cancelled before the expiration date thereof, the issuing insurer will endeavor to mail _____ dayswritten 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 representatives.”

04/21/23 David S. Hershey© CPCU, CRM, CRIS, AMIM, ARM, MLIS 10

Page 11: The BIG Change in The ACORD Certificate Massachusetts RIMS Chapter Spring Conference 27 March 2014

The BIG Change in

The ACORD Certificate• New Language: (ACORD 27)

“Should any of the above described policies be cancelled before the expiration date thereof, notice will be delivered in accordance with the policy provisions.”

04/21/23 David S. Hershey© CPCU, CRM, CRIS, AMIM, ARM, MLIS 11

Page 12: The BIG Change in The ACORD Certificate Massachusetts RIMS Chapter Spring Conference 27 March 2014

• Employers Mutual Casualty Co. V. Northwest Mo. Masonry, Inc., 06-6023-CV-SJ-NKL, 2008 is an example of a case where the court enforced the insurer’s obligation to provide notice to the certificate holder based on the “endeavor to” language. This is rare.

The BIG Change in

The ACORD Certificate

04/21/23 David S. Hershey© CPCU, CRM, CRIS, AMIM, ARM, MLIS 12

Page 13: The BIG Change in The ACORD Certificate Massachusetts RIMS Chapter Spring Conference 27 March 2014

The BIG Change in

The ACORD CertificateFalsehoods about the change in the Form:•“It is against the law to change the Cert”•“The new form DOES provide notification to the Additional Insured”•“We as the agent will notify the Certificate Holder” no obligation of the Agent to the CH•“The underwriter won’t do it”•“Requires approval from the Insurance Dept.”

04/21/23 David S. Hershey© CPCU, CRM, CRIS, AMIM, ARM, MLIS 13

Page 14: The BIG Change in The ACORD Certificate Massachusetts RIMS Chapter Spring Conference 27 March 2014

The BIG Change in

The ACORD CertificateCorrections to the previous statements:•It is a requirement of the law to produce an accurate certificate•Standard NoC provisions notify the Insured – not the Additional Insured or the Cert Holder•No privity of contract between Cert Holder and the Agent and therefore difficult to obtain coverage in the event of a failure to send

04/21/23 David S. Hershey© CPCU, CRM, CRIS, AMIM, ARM, MLIS 14

Page 15: The BIG Change in The ACORD Certificate Massachusetts RIMS Chapter Spring Conference 27 March 2014

The BIG Change in

The ACORD CertificateCorrections to the previous statements: (cont) notification – agent is usually not authorized to extend coverage of the Insurer to a 3rd party•Some underwriters will issue the endorsement and some will not, it is usually an educational process and depends on the particular office of the Insurer •Insurance departments do not care – 04/21/23 David S. Hershey© CPCU, CRM, CRIS,

AMIM, ARM, MLIS 15

Page 16: The BIG Change in The ACORD Certificate Massachusetts RIMS Chapter Spring Conference 27 March 2014

The BIG Change in

The ACORD Certificate

1) Who are these individuals?2) What is their collective band name?

3) What famous drummer provided the inspiration for the name of the group?

04/21/23 David S. Hershey© CPCU, CRM, CRIS, AMIM, ARM, MLIS 16

Page 17: The BIG Change in The ACORD Certificate Massachusetts RIMS Chapter Spring Conference 27 March 2014

The BIG Change in

The ACORD CertificateThe Results Among Insurers

•We have over 70 sample endorsements being used by various Insurers and their offices – an increase from zero – don’t forget about “upstream” requirements•Increasing effort from Insurers to exclude NoC to Cert Holders for non-payment•Facility / Pool Assignments •Significant Agent lack of knowledge

04/21/23 David S. Hershey© CPCU, CRM, CRIS, AMIM, ARM, MLIS 17

Page 18: The BIG Change in The ACORD Certificate Massachusetts RIMS Chapter Spring Conference 27 March 2014

The BIG Change in

The ACORD CertificateWhy the change?

•History – Agents & Brokers traditionally issued certs on behalf of their customers and Insurers•The old process was a “phantom” NoC effort•Failure to notify the Cert Holder would result in a continuation of coverage for the Cert Holder and often at the expense of the Agent’s or Insurer’s E&O

04/21/23 David S. Hershey© CPCU, CRM, CRIS, AMIM, ARM, MLIS 18

Page 19: The BIG Change in The ACORD Certificate Massachusetts RIMS Chapter Spring Conference 27 March 2014

The BIG Change in

The ACORD CertificateExample of Current Endorsements (ACORD 27)

04/21/23 David S. Hershey© CPCU, CRM, CRIS, AMIM, ARM, MLIS 19

Page 20: The BIG Change in The ACORD Certificate Massachusetts RIMS Chapter Spring Conference 27 March 2014

The BIG Change in

The ACORD Certificate

04/21/23 David S. Hershey© CPCU, CRM, CRIS, AMIM, ARM, MLIS 20

Page 21: The BIG Change in The ACORD Certificate Massachusetts RIMS Chapter Spring Conference 27 March 2014

The BIG Change in

The ACORD Certificate

04/21/23 David S. Hershey© CPCU, CRM, CRIS, AMIM, ARM, MLIS 21

Page 22: The BIG Change in The ACORD Certificate Massachusetts RIMS Chapter Spring Conference 27 March 2014

The BIG Change in

The ACORD CertificateProvision made for Lenders

“If the lender holds a mortgage on the property described in either ACORD 27 or ACORD 38, then the policy covering that property commits the insurer to notify the mortgage holdr named in the policy in the event of cancellation or non-renewal.”

04/21/23 David S. Hershey© CPCU, CRM, CRIS, AMIM, ARM, MLIS 22

Page 23: The BIG Change in The ACORD Certificate Massachusetts RIMS Chapter Spring Conference 27 March 2014

The BIG Change in

The ACORD CertificateExample of Current Property Policy Commitment

LENDERS LOSS PAYEE AND MORTGAGE HOLDER INTEREST AND OBLIGATIONS:

6.10.05. “If this Policy is cancelled at the request of the Insured or its agent, the coverage for the interest of the Lender or Mortgagee will terminate ten (10) days after the Company sends to the Lender or Mortgagee written notice of cancellation…”

04/21/23 David S. Hershey© CPCU, CRM, CRIS, AMIM, ARM, MLIS 23

Page 24: The BIG Change in The ACORD Certificate Massachusetts RIMS Chapter Spring Conference 27 March 2014

The BIG Change in

The ACORD CertificateSummary

•There are solutions for NoC requirement– Some limitations may exist for A/R placements• May require receding through pool facility to a carrier

who will issue NoC to Cert Holder• May require pre-payment (although this in itself is not

always reliable; audit a/p, insured request for cancellation• Key – most States do not regulate 3rd party notice

04/21/23 David S. Hershey© CPCU, CRM, CRIS, AMIM, ARM, MLIS 24

Page 25: The BIG Change in The ACORD Certificate Massachusetts RIMS Chapter Spring Conference 27 March 2014

The BIG Change in

The ACORD CertificateSummary (cont.)

•Build you own library of sample of endorsements offered by other Insurers•Stand firm – no compliance, no job assignment•Suggest Agent / Broker cancel & rewrite to an insurer that will provide NoC to 3rd parties – pro-rata cancellation factor should apply

04/21/23 David S. Hershey© CPCU, CRM, CRIS, AMIM, ARM, MLIS 25