An agency’s staff attended a seminar, where the instructor advised that agencies could be committing fraud by issuing certificates showing full limits of liability coverage, if there had been paid claims on the policy. But the agency employees had thought that the statement on the certificate form, “Limits Shown May Have Been Reduced by Paid Claims,” was sufficient to address this situation.

Who’s correct?

The agency staff is right, according to a consensus of certificate of insurance experts consulted by the Big “I” Virtual University.

The ACORD 25 form has a caveat, which informs the holder that limits may have been reduced by claim payment. The ACORD Forms Instruction Guide for the ACORD 25 form says: “Any questions about appropriate limits or applicable policy coverage(s) should be answered by the issuing insurer(s). As used here, the limit should be listed as a whole dollar amount, as found on the policy declarations page.”

An agency can’t verify claims status every time it issues a certificate, so the forms guide should be followed for consistency. ACORD says to show the limit as it appears on the policy. Any questions should be referred to the insurer.

The VU’s Ask an Expert service fielded a question on a similar topic in January:

What CGL aggregate limit should be shown on the ACORD 25, if the aggregate has been reduced by paid claims?
Q: Because of the new certificate of insurance law that took effect in N.H. on Jan. 1, 2012, I have been conducting classes on the new law. One such class brought up a question about advice that an agent was given at another seminar. She was told that the certificate should always be issued with the general liability occurrence and aggregate limits that are currently available because of incurred losses.

I disagree because the certificate of insurance (ACORD) specifically indicates that these limits may have been reduced by paid claims. I was wondering what your thoughts were about that.

A: I agree with you. In addition to the certificate statement, the ACORD Forms Instruction Guide says with regard to the aggregate limit:

Enter limit: The general liability, general aggregate limit amount. Any questions about appropriate limits or applicable policy coverage(s) should be answered by the issuing insurer(s). As used here, the limit should be listed as a whole dollar amount, as found on the policy declarations page.

The last sentence clearly expresses what should be shown on the certificate of insurance: the limit shown on the policy declarations page. It’s unreasonable to expect the agent to check on reduction of limits every time a certificate is issued. So, the policy limit is shown with a caution on the certificate that it may have been reduced.

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