Certificates of Insurance: False Assurance?

John Anderson Cargo Liability, Contracts, Transportation

Recent changes to the Acord 25 Certificate of Liability Insurance present additional problems for certificate holders. Certificates are problematic and frequently misunderstood, and the recent elimination of the “notice of cancellation” provision aggravates those shortcomings.

Obtaining certificates for motor carriers to be used is standard practice. In fact, it is more than standard practice. It probably is safe to say that brokers, shippers, carriers and other motor carrier users have a duty to obtain a certificate. I do not think anyone would disagree that a user who fails to obtain a certificate before using an unknown carrier would arguably be guilty of negligence.

The typical certificate obtained is an Acord 25 Certificate of Liability Insurance. Unfortunately, certificate holders often misunderstand what the certificate is and incorrectly believe that it provides them with more protection than it does. These misunderstandings and problems bear repeating:

  1. Certificates do not provide insurance coverage to anyone, but rather are a snapshot of the coverage that actually exists by virtue of the policies on the date the certificate is issued, which means that the actual insurance policies may not be in force the day after you receive the certificate;
  2. Any notation on a certificate, such as naming a the holder as an additional insured or loss payee, is without consequence since changes to a policy can only be made by an endorsement to the policy;
  3. A certificate holder does not obtain any rights by virtue of receiving a certificate; the certificate clearly states it is issued “as a matter of information only and confers no rights upon the certificate holder …”
  4. A certificate holder is not entitled to receive notice of cancellation or modification of a policy–this is often misunderstood, but in the past the certificate simply stated that “the issuing insurer will endeavor to mail ____ days written notice to the certificate holder …” but then stop reading, ignoring the further statement that “failure to [give written notice] shall impose no obligation or liability of any kind upon the insurer, its agents or representatives.” (Emphasis added.)
  5. A certificate does not tell you what is excluded, excepted or otherwise not covered by the policies, especially in regard to cargo insurance;
  6. Some certificate holders compound their problems by not looking carefully at the certificate to make sure it is an original issued to them in their own name by the insurance company and thereby unwittingly accept forged or fraudulent certificates.

Now, on top of the foregoing problems, the Acord 25 Certificate of Liability Insurance has been modified to delete the language regarding notice of cancellation and to replace it with the following language:

“Should any of the above described policies be cancelled before the expiration date thereof, notice will be delivered in accordance with the policy provisions.”

Technically, this change in wording changes nothing since the prior language did not actually require notice be given to the certificate holder, but only that the insurer “endeavor” to provide notice. However, “endeavor” to provide is better than no effort to provide.

This change actually was made in September 2009, but the old forms were allowed to continue to be used for one year, until September 2010. Since then, the new Acord 25 is required to be used, and it cannot be modified. This change emphasizes the importance for brokers, shippers, carrier and other users of motor carriers to be extremely diligent and have strict protocols, especially in regard to cargo insurance.

A motor carrier’s liability (excluding cargo) insurance still can be verified on the FMCSA website. Along with obtaining a certificate, checking a carrier’s authority status and insurance is standard practice. As long as the minimum levels of coverage required by the FMCSA are acceptable, that method of confirmation remains valid.

However, this change in the Acord 25 comes on the heels of the FMCSA’s complete elimination of the cargo insurance filing requirement as of March 21, 2011. A motor carrier (common or contract), except for a household goods carrier or freight forwarder, no longer has to maintain any cargo insurance as far as the FMCSA is concerned. This Acord 25 change compounds the problem because although you may obtain a certificate today, you will not receive any notice from the insurance company or agent when the policy is being cancelled, modified, or is expiring. This leaves the certificate holder in a precarious position.

To protect themselves, users of motor carriers need to consider doing the following:

  1. Request a policy endorsement that requires the insurer to give you ____ days prior written notice of cancellation, modification or expiration of a policy (although insurers may be unwilling to do this or will charge an additional fee for it);
  2. Modify your contract with the carrier to require it to provide you with a copy of any notice of cancellation, modification or expiration immediately upon receipt;
  3. Institute a procedure where you obtain a new certificate of insurance for each carrier every 30 days or every time you use the carrier.

Regardless of the procedure you institute, you must remember that a certificate does not tell you everything you need to know about a cargo insurance policy. Only by obtaining a copy of the motor carrier’s policy and reviewing it carefully will you know if it provides the coverage required. Of course, your contract with the motor carrier will require it to be liable and insured for certain losses, and the motor carrier will be liable to you if it fails to provide that coverage. However, if you use owner-operators or other small carriers with few assets, a judgment against the carrier for breach of contract in most cases will be worthless.

Please do not hesitate to contact us if you have questions or want to discuss appropriate policies and procedures to monitor your motor carriers.