Last week, the National Conference of Insurance Legislators adopted the “Certificates of Insurance Model Act” during NCOIL’s annual meeting in Point Clear, Ala. The model is based in significant part on the legislative template initially developed by the Big “I” in 2010, and the association assisted NCOIL in the development and adoption of this proposal.

A certificate of insurance is an informational document that provides a courtesy snapshot of an insurance policy and useful information about the coverage in place, and the model responds to the serious certificate-related problems that confront many agents and brokers today.

Many third parties exploit their marketplace leverage to demand the issuance of certificates that do not accurately reflect the underlying insurance policies. The model is designed to eliminate such behavior and ensure that certificates are utilized for their intended purpose.

Addressing the improper use of certificates has been a Big “I” priority in recent years, and the Big “I” has successfully secured the passage of laws similar to the new NCOIL model in numerous jurisdictions.

Last week’s action is the latest step in that national effort and NCOIL’s action is expected to bolster these ongoing advocacy efforts.

The model act addresses certificate issues in a number of ways, including: 

Filing of certificates. The model law requires certificates of insurance to be filed with state insurance regulators prior to use, and state regulators have the authority to disapprove forms that are unfair, misleading, deceptive or against public policy. 

Current editions of ACORD, AAIS and ISO certificate forms are not subject to this requirement. Any certificate forms containing specific content and wording established by federal or state law also do not need to be filed.

The model only permits forms to be filed by or on behalf of an insurer, and there is no mechanism for non-insurers to submit their own proposed certificate forms.

Restrictions on issuance. The model law prohibits any person from preparing or issuing a certificate of insurance that contains false or misleading information concerning the underlying policy or one that purports to alter, amend or extend coverage. A certificate also may not warrant that the policy referenced in the certificate complies with the insurance or indemnification requirements of a particular contract. 

Application to third parties. In an effort to help eliminate or reduce requests for improper or misleading certificates, the model law applies specific requirements and extends the jurisdictional reach of state regulators to third parties who make such requests. Specifically, the model prohibits a person from requesting or requiring the issuance of a certificate that contains false or misleading information concerning the underlying policy; purports to alter, amend or extend coverage; or is issued on a form not filed with the commissioner.

State regulators are also given the authority to issue cease-and-desist orders and fines against third parties who violate these requirements. 

Status of certificates. In an effort to further reduce any incentive that a party might have to request an improper certificate, the model confirms that a certificate is distinct from an insurance policy and codifies the principle that a certificate does not alter, amend or extend coverage or independently confer rights. The model also provides that any certificate issued in violation of the act is null and void.

The Big “I” publically thanked NCOIL for its action on this important issue, especially Kentucky State Representative Steve Riggs, NCOIL’s Property-Casualty Insurance Committee chairman, for his leadership.