Certificates of Insurance may not be worth much, but…

The refrain that an insurance certificate is not worth the paper it’s printed on is often heard. That response to certificates is strong enough, and simple enough, that it usually ends the discussion: the certificate holder loses. Spector v Cushman & Wakefield, Inc., NY Slip Op 08236 (Appellate Division, First Dept. November 29, 2012) does not make certificates into worthwhile instruments, but it is nonetheless instructive. Defendant leased space to plaintiff under a lease that required the tenant to maintain liability insurance with million-dollar limits.  The plaintiff tendered an insurance certificate that attested that the policy had such limits. In fact, the policy had a $1.5 millon limit of liability, subject to a $500,000 self-insured retention.

Not long ago, I was called upon to test whether a lease that required the tenant to maintain insurance with limits of $3,000,000 for personal injury and $1,000,000 for property damage (this is how CGL was written before 1986) was satisfied by obtaining a CGL policy for $1,000,000, subject to a deductible per occurrence of $1,000,000; and an excess policy for $5MM. There were not many cases and they shed little light on how to handle this kind of dispute. So, when the Spector court observed

The motion court properly granted summary judgment to Citibank on its cause of action for failure to procure insurance. Under the Citibank-OneSource agreement, OneSource was required to purchase an insurance policy with a limit of $1 million each occurrence; however, OneSource obtained a policy with an each occurrence limit of $1.5 million, an aggregate limit of $1.5 million, and a $500,000 self-insured retention. Although OneSource correctly maintains that the agreement did not prohibit self-insured retentions, it required OneSource to provide a certificate of insurance notifying Citibank of such a provision and no such notice was given. Thus, the insurance procurement provision was breached because Citibank reasonably expected (see Federated Retail Holdings, Inc., 77 AD3d 573, 574 [1st Dept 2010]) that OneSource would either provide effective coverage or notice of the amount of the self-insured retention.

it was evident–even before citing the Federated case–that the court was walking the same walk it had trod before.

Note that the requirement (in a lease, for instance) that a contract party supply a certificate of insurance usually comes with demands that the certificate attest to many things: that the policy covers additional insured parties is a common request for inclusion in a certificate; so is a request for 30 days’ notice of cancellation. It’s against the rules to add legends to an insurance certificate, especially ones that go against the terms of the policy, but it is an open secret that insurance brokers issue these certificates regularly: Their policyholder contractors must have the legend on the certificate (otherwise they may be excluded from the site or the payroll) and if they, the broker, don’t issue the certificate, then the contractor will go to the schlemiel next door, who will write the paper. The law has long been clear that the insurance company is not bound by any of these uncanonized addenda to the certificates. It has also long been clear that the certificate holder (who is not the broker’s client) cannot maintain an action against the broker in the absence of fraud. Negligent misrepresentation requires privity, absent which there is no duty to speak the truth.

Here, however, we have a case in which the court found a duty to disclose–in the certificate–that the policy reserved a substantial self-insured retained amount. That is, the policy varied from the requirements of the lease. The landlord’s reasonable expectation of better coverage was not dispelled by a warning on the certificate about the SIR. It would have been “against the rules” to add that legend to the certificate, but its addition would not, or might not, have been meaningless. This may herald a whole new jurisprudence pertaining to insurance certificates.

It’s still not a good idea to rely on certificates, but of late, New York’s courts have shown a tendency to adopt a rule of reason. This bears watching.

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