By: AgencyEquity.com
Insurance agents sometimes ask how they should handle requests for certificates of insurance when the carriers providing the coverage have sent cancellation notices on the policies. The right answer is do not issue the certificates. This case is a good example of why.
A siding contractor in Florida obtained a workers’ compensation (WC) insurance policy through an independent agency. The policy term was April 29, 2017 to April 29, 2018. The agency had an affiliated company that handled the employer’s payroll processing. The employer was required to run its payroll and pay the WC insurance premium monthly through the agency.
The employer failed to pay the premium due by mid-January 2018. The agency was required to inform the WC carrier of this, knowing that doing so might result in the policy’s cancellation or non-renewal. There was some later disagreement about whether the agency knew how likely that outcome was or how soon the policy might be canceled. Regardless, the agency notified the carrier a week after the missed premium due date. The carrier issued a notice the next day stating that the policy would be canceled on February 10.
There was later disagreement in court as to when the agency learned of the pending cancellation date, the extent to whether it could monitor policies with cancellations pending, and whether it could include the pending cancellation on a certificate of insurance.
A general contractor (GC) that had hired the employer requested a certificate of insurance (COI.) The agency issued one on February 6, almost two weeks after the carrier sent the cancellation notice and only four days before the cancellation date. It showed the WC insurance expiration date as April 29, 2018. The GC relied on the certificate and did nothing else to verify coverage. However, the policy was canceled as scheduled on February 10.
On April 24, two and a half months after cancellation and four days before the original expiration date, one of the employer’s workers suffered a serious injury while working on the GC’s project (the court opinion did not describe it.) A Florida administrative court that handles WC disputes ruled that the employer was uninsured and the GC was the worker’s employer for WC purposes. However, the GC did not have WC insurance for non-leased employees and was required to pay the worker’s benefits out of pocket.
The worker and the GC agreed that the GC was liable for $1.85 million, and the GC assigned its claims against the agency to the worker. The worker then sued the agency for negligence and fraudulent misrepresentation of the WC policy’s status. Both sides asked the court to rule in their favor based on the known facts and the law.
The judge ruled that too many of the facts were in dispute to warrant a ruling based on law. She wrote:
“Certainly, a reasonable jury could find that the COI’s representation that the policy would expire on April 29, 2018, despite Defendant having already initiated the process by which the policy would be cancelled much earlier, was a false or misleading statement. … Of course, a reasonable jury might also find that at the time Defendant issued the COI — which contained multiple disclaimers — (the employer) did in fact have an ‘active’ insurance policy that expired on April 29, 2018, so the COI was not false or misleading.
In that same vein, a reasonable jury … might then find that Defendant knew or should have known about the erroneous statement … Another reasonable jury, considering these same facts, might instead take Defendant’s view and find that Defendant did not know about the cancellation until it received official confirmation from (the carrier) … after the COI had already been issued.”
She issued this opinion, ordering a jury to sort things out, in August 2023. The two sides are likely negotiating a settlement.
In most states, insurance agencies are under no legal obligation to issue certificates of insurance. They issue them as a service to clients, not out of obligation. Clearly, then, there is no obligation to issue one for a client whose policies are pending cancellation. Doing so can lead to messes like this one. Agencies should avoid doing it.
