A/E firms are constantly being asked to provide 30 days notice of cancellation in their contracts with their clients. Typical contract language is as follows: “All policies for insurance must be endorsed to contain a provision giving the Owner at least thirty (30) days prior written notice of any cancellation of the policy or material change in coverage.”
ACORD, the main vendor for insurance certificates, has revised the ACORD 25 Certificate of Insurance form and removed the cancellation notice provision. This change has caused confusion and questions from your clients. Unfortunately, we are unable to issue an older edition of this form, modify the current form, or complete a proprietary form your client may provide. Listed below are bullet points provided by the Florida Association of Independent Agents regarding Certificates of Insurance.
- Notice of cancellation is a policy right, not an unregulated service. No insurance company shown on a certificate is able to provide the cancellation notice by endorsement. For example, the insured can cancel immediately, so it would be impossible for the insurance company to give a 30-day notice. State law also grants the insurance companies the right to cancel for nonpayment with 10 days notice.
- If an agency was to issue a certificate that provides the cancellation notice you request, they would do so with the full knowledge that it would be impossible to actually give that amount of notice under certain circumstances. As such, the certificate could be alleged to constitute a misrepresentation or fraud which could subject an agency and staff to serious civil and criminal penalties.
- If a certificate purports to provide a policy right different from that provided by the policy itself, then the certificate effectively purports to be a policy form. Policy forms must be filed and approved by our state department of insurance. Use of non-filed policy forms is illegal and could result in legal sanctions distinct from the assertion that the certificate is fraudulent.
- Under the ACORD Corporation’s licensing agreement, the prior editions of superseded forms can be used for one year from the time the new forms are introduced. Beginning in September 2010, we cannot use an older edition of the ACORD 25. Doing so would violate ACORD’s licensing agreement and, as a copyrighted document, federal copyright law.
- Likewise, we are unable to modify the new certificate to add a notice of cancellation. ACORD forms are designed to be completed, not altered. ACORD’s Forms Instruction Guide says that a certificate should not be used “To waive rights…To quote wording from a contract…To quote any wording which amends a policy unless the policy itself has been amended.” In addition, our insurance company contracts only allow us to issue unaltered ACORD forms.
- We are often asked to issue proprietary certificates provided by the certificate requestor. Again, our insurance company contracts only allow us to issue unaltered ACORD forms. Many proprietary certificates include broad, vague or ambiguous language that may or may not be incompliance with state laws, regulations, and insurance department directives. Therefore, we cannot issue any proprietary certificates that have not been reviewed by the state insurance department.
Most insurance companies will not issue an endorsement providing the thirty (30) days notice. Of the few insurance companies that will issue an endorsement, it only applies if the insurance company cancels the policy for reasons other than non-payment. Since it is very rare that an insurance company would cancel a policy mid-term, the endorsement provides little contractual protection to the A/E firm or their client.
Our recommendation is to strike the cancellation clause from the contract. If your client is unwilling to agree to that, we recommend the following sample language: “The Design Professional shall provide the Client notice within five (5) days of an insurance company’s cancellation of the policy.”
Since it is very rare that a policy is cancelled, this language should not put a burden on the A/E firm.
The City of Atlanta conducted a very detailed study on the issue of Certificates of Insurance and the Cancellation provision. They decided to stop requiring the direct notice of cancellation provision in their contract. Here is a link to the study.
If you have questions or need any additional information about the ACORD form or any other risk management topics, please do not hesitate to contact us.