Texas Gov. Rick Perry has signed into law a measure backed by agents that requires regulatory approval of property and casualty certificate of insurance forms provided to insureds as proof of insurance coverage.
Certificates of insurance are widely used in commercial insurance and agents traditionally have been asked to provide them to insureds. As a result agents are often brought into policy disputes because of language contained in the certificates.
Under Senate Bill 425, only certificates approved by the Texas Department of Insurance may be issued. The bill allows for both a fee for filing a certificate with the department and penalties for noncompliance.
The Independent Insurance Agents of Texas worked with various stakeholders to help craft the legislation. IIAT Executive Director David VanDelinder explained the importance of the measure to agents and what to look for in its implementation.
Insurance Journal: Why was the certificate of insurance legislation necessary?
David VanDelinder: Certificates are supposed to be simply evidence that there’s insurance in place to protect a third party that may be relying on that insured for some work that’s being done. So it’s basically a message to a third party that there is insurance in effect when you need it.
What the third party started doing over time, however, is trying to get the certificates to replace the insurance policy by guaranteeing certain things would be true. For instance, they might have a contract with that insured that requires them to indemnify or protect that third party. And they want the certificate to say that this protects me in that situation. So it went way beyond the typical certificate, which says I’ve got liability coverage and this limit. …
So we were being asked with more and more frequency to certify issues that we could not have a judgment on, because we’re not attorneys, and there were situations where they were asking for terms of coverage that didn’t exist and couldn’t be done.
And yet we were in a situation where we had no leverage. We pretty much had to sign some of these certificates because our insured couldn’t work the next day if he didn’t produce a certificate of insurance.
So it was an attempt by third parties to leverage the situation to get more of what they wanted into a certificate. And that’s not good for them either because the ultimate result is agents end up issuing ambiguous or inaccurate certificates.
IJ: How does the legislation that has passed address those issues?
VanDelinder: It requires any non-standard certificate form – a standard form would be typically the ACORD form or some of the other national forms that were published years ago for this purpose – but any non-standard form created by a third party would have to first be approved by the Department of Insurance.
And the department, we hope, is going to look at some of these issues where we are being asked to certify things that we can’t certify and eliminate those from the certificates. As a practical matter in other states where this has been done, a lot of time those third parties that have had these non-standard certificates simply say ‘OK we’ll just take the ACORD form or we’ll take one of these standard certificates.’ That’s really what we would prefer.
IJ: Have you been working with TDI to craft the legislation?
VanDelinder: We certainly ran it by them. They offered some changes in language, which were amended into the bill. We worked with the general contractors, we worked with the oil and gas people, we worked with municipalities to make sure that everyone was clear on what we were trying to accomplish. One of the reasons the bill passed is that we had the people most affected by it onboard with the legislation.
IJ: Do you have any expectations about how TDI will implement it or any concerns about what they might do?
VanDelinder: Well, yes, we are concerned. I think implementation is going to be everything here. … We will be close to the process and hopefully engaged in providing advice to them about some of the rules that should exist. But ultimately, it’s going to be the experts at TDI that review these forms and approve them or disapprove them.