An agency receives requests from mortgage companies for specific wording in reference to replacement cost on an evidence of insurance (EOI).

Q: "After reviewing wording in the policy documents, we are using:

• Coverage A - Dwelling - Replacement Cost $160,000
• Additional amount of insurance up to 25% of Coverage A

Mortgage companies are requesting ‘100%,’ ‘guaranteed’ or ‘full replacement cost’ and ‘extended replacement cost %.’ We would appreciate clarification on acceptable wording."

A: “You should not place anything on a certificate or evidence of insurance that does not accurately represent what the policy says. If the policy doesn't use terms like ‘guaranteed,’ ‘full replacement cost’ or ‘extended replacement cost,’ you should not use those words on an ACORD form. Not only do they have no meaning, in the event of a loss that is either not covered or inadequately covered, the lender will seek indemnification from someone. It may look directly to the agent, or it could go after the insured for breach of contract under the loan agreement and assume the insured's right of suit against the agent.

My first expert witness case years ago involved an agent who issued a certificate of insurance (COI) on a strip shopping center that said the policy provided ‘all risks’ coverage—a term that did not appear on the property form. When a significant coinsurance penalty was invoked on a major loss, the property owner claimed he thought ‘all risks’ meant ‘guaranteed replacement cost.’

The ACORD Forms Instruction Guide shows what information you should display in each field of ACORD forms. Agents should only show information the ACORD guide calls for and should not elaborate with broad, vague, undefined language. The COI or EOI represents the terms of the policy and should not incorporate additional language the policy does not use.

Last year, the Big ‘I’ Virtual University (VU) hosted a national webinar with the high sheriff of lender requests, David Thompson. In addition to Fannie Mae, condo, NFIP and many other areas of concern when dealing with lenders, the webinar included segments on COI and EOI requests like this. Purchase a recording of the webinar, Lenders Gone Wild, online for $59.”

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.