Never Misrepresent Policy Coverages on a COI

A number of Ask an Expert questions illustrate a common misunderstanding of indemnification in the commercial general liability policy, specifically regarding the difference between an indemnitee and an additional insured. If you’d like some clarity, check out the Big “I” Virtual University (VU) article “Additional Insured vs. Indemnitee.”

Q: “I write CGL for a contractor based in Mississippi and working in Mississippi. The owner is a public entity, specifically a school system, and the owner’s attorney requires inserting this phrase on the certificate of insurance: ‘All of the Contractor’s contractual liabilities, including but not limited to its indemnity obligations, are covered by the Commercial General Liability policy.’

The general contractor has provided a 100% performance and payment bond for the project in favor of the owner and has also purchased a builders risk policy for the full value of the work. We have a superb general contractor with a long history of completed projects and happy owners. Regardless, it seems as though the owner’s counsel is trying to turn the CGL into a bond. Is this assumption correct? What are the potential repercussions of adding such language to a COI?”

A: “Even bonds wouldn’t comply with this statement. The attorney clearly does not understand the contractual liability coverage under the ISO CGL policy. Putting this statement on the COI would, in my opinion, violate the following excerpts from this March 24, 2009 Mississippi regulatory directive:

The Mississippi Department of Insurance issued Regulation 2009-1 entitled ‘General Property and Casualty Binders, Certificates of Insurance or Indemnity Agreements.’ The requirements of this regulation include:

A. No insurer or producer may issue a binder, certificate of insurance, indemnity agreement or any other similar type of instrument which either affirmatively or negatively amends, extends or alters the coverage provided by its approved issued forms and endorsements.

D. No binder, certificate of insurance, indemnity agreement or any other similar type of instrument shall contain references to construction or service contracts or insurance requirements for the purpose of defining or amending coverage afforded by the policies to which the certificate makes reference. No certificate of insurance may be used to define, amend, extend, restrict or alter coverage afforded by the policies to which the certificate of insurance makes reference.

E. No insurer or producer doing business in Mississippi shall have the authority to issue an ‘Agent’s Opinion Letter’ or any other similar correspondence purporting that an insurance policy provides coverages which the policy does not provide.

In addition, in most states, it is illegal to misrepresent insurance policy terms. This clearly does and could likely violate fraud statutes. In many states where our model COI bill has been passed into law, asking someone to perform an illegal act is illegal itself.

You can’t make that statement because it’s not true for any CGL policy I’ve ever seen.”

Bill Wilson is director of the Big “I” Virtual University.

This question was originally submitted by an agent through the VU’s Ask an Expert Service. Answers to other coverage questions are available on the VU website. If you need help accessing the website, email logon@iiaba.net to request login information.