Insurance policies are sometimes called “the
least read bestsellers.” At AAIS, we are well aware that even
“simplified language” forms are rarely read, except by
regulators, until a claim arises.
What knowledgeable insurance buyers and
sellers do read carefully, however, are the forms developed by the
Association for Cooperative Operations Research and Development,
commonly known by its acronym, “ACORD,” and headquartered in
Pearl River, N.Y.
ACORD, founded in 1970 as a cooperative
venture between property/casualty agencies and carriers, has
developed hundreds of standardized applications and other forms
designed to eliminate variations in the business of insurance.
Since then, ACORD has added standards for the
life insurance and reinsurance industries and promoted adoption of
those standards to improve transmission of data.
When property/casualty practitioners do
business, policy forms usually change hands long after a
transaction is completed, if at all. The documents that allow
money to be borrowed, contracts to be signed, and goods to be
purchased are typically ACORD certificates that tell lenders,
project owners, lessors, and vendors in shorthand fashion how much
insurance a potential borrower, contractor, lessee, or buyer has.
As a practical matter, parties to commercial
transactions often presume what's in the policy forms from the
shorthand entries on the ACORD forms. So, while ACORD forms are
developed to reflect the provisions of standardized policy forms,
they also play a role in fashioning expectations for coverage.
ACORD certificates are reviewed and revised
every few years. For the first time in several years, the ACORD
certificates for property and liability insurance were expanded
and modified in 2003, adding more detailed entries in some cases.
ACORD is now seeking industry input on the
content and usefulness of the new forms, says Joel Volker, legal
counsel.
While the documents described in this article
are commonly referred to as “ACORD certificates” in ordinary
discourse among insurance professionals, there is, in fact, an
important technical distinction between an ACORD “certificate of
insurance” and a document called “evidence of insurance.”
Each ACORD certificate of insurance reads that
it is issued simply as “a matter of information.” As such, it
confers no right to coverage to the person or organization
designated as “certificate holder” in a box at the bottom of
the form.
To correct a misconception among some insureds,
issuance of a certificate of insurance does not make the
certificate holder an insured for property coverage or an
additional insured for liability coverage. The policy itself must
be amended or endorsed by the carrier to expand coverage in that
fashion.
“A certificate is not a contract between the
[certificate] holder and the insurer,” reads the ACORD
instructions that accompany the certificates. “Although some
companies provide notice of cancellation to certificate holders,
they are not obliged to do so, since the holder is not a party to
the contract.”
The ACORD 24, the Certificate of Property
Insurance, is relatively simple and unchanged. It provides check
boxes for agents or brokers to designate perils for building
property coverage (basic, broad, special, earthquake, and flood,
plus blank boxes for other unspecified perils). It also provides
spaces for designating inland marine, crime, boiler and machinery,
and other unspecified forms of coverage, along with blanks for
entering limits for building, personal property, business income,
extra expense, and other coverage.
More changes are evident in the latest version
of the ACORD 25, the Certificate of Liability Insurance, the form
commonly required of all types of organizations, for-profit and
nonprofit, whenever their activities could create a products,
premises, or operations exposure for someone else. It's the form
project owners require of major contractors, and the same form a
municipality might require of a church group hosting a picnic in a
park.
The ACORD 25 provides check boxes for general
liability, auto liability, garage liability, excess/umbrella
liability, and workers comp/employers' liability. Blanks are
provided for entering relevant limits (each occurrence, general
aggregate, products/completed work, auto bodily injury per person,
auto bodily injury per accident, etc.).
A few significant changes have been introduced
to the ACORD certificate of liability insurance.
Check boxes have been added for the agent or
broker to indicate if the general aggregate limit under the GL
policy applies per policy, per project, or per location.
Previously, there was no distinction for how the limit applied.
This addition to the form reflects, in part,
requirements by some general contractors that subcontractors have
access to full liability limits for any project they work on. In
light of this trend, the AAIS Artisans Program gives insurers the
option of applying the general aggregate limit on a per project
basis, and the newly revised AAIS Businessowners Program includes
an endorsement for applying the general aggregate limit on a per
location basis.
The new ACORD 25 has a space for a “damage
to rented premises” limit, an updated name for what is also
known as “fire damage” or “fire legal liability” coverage.
As the name suggests, the coverage can now extend to damage to
rented premises from other causes in addition to fire.
The new ACORD 25 completely changes its
approach to reporting umbrella/excess liability coverage.
Previously, the form asked agents and brokers
to indicate if excess liability coverage was provided by an “umbrella
form” or “other than umbrella form,” and provided lines for
entering the each occurrence and annual aggregate limits.
“There were no two people who could agree on
what the term 'umbrella' meant,” says Volker. A definition may
not be relevant anyway.
For example, the AAIS Commercial
Umbrella/Excess Liability Program provides strict “follow form”
excess coverage for certain types of exposures, such as auto,
aircraft and watercraft liability, and effectively excludes
coverage for such exposures if they are not covered by underlying
insurance.
On the other hand, the AAIS Commercial
Umbrella/Excess Liability Program provides limited “drop down”
coverage for incidental premises and operations exposures that may
not be addressed in an underlying general liability policy.
So, in most cases, it is not possible to
determine what a particular excess/ umbrella policy covers unless
you actually read it in conjunction with the underlying policies.
Given that, the new ACORD 25 no longer asks
about “umbrella form.” Instead, it provides check boxes to
designate whether the excess/umbrella policy has a claims made or
occurrence trigger, and to enter the amount of the deductible or
self-insured retention.
ACORD certificates of insurance simply serve
notice to a certificate holder that someone they're dealing with
has insurance.
ACORD forms that provide “evidence'” of
property insurance are another matter in that the individual(s)
or organization(s) identified as “additional
interest” in the box provided are entitled to “all the rights
and privileges afforded under the policy” if they have an
insurable interest in the covered property.
ACORD 27, Evidence of Personal Property
Insurance, is a relatively simple document, held over from when a
single ACORD form was used as evidence of insurance for personal
or commercial property. It is largely a blank slate that provides
boxes for agents and brokers to identify a piece of property and
describe the insurance on it.
Although cars and other personal property can
be listed on the ACORD 27, it is typically used to establish
evidence of insurance on residences; mortgage holders are
typically the additional interests.
The instructions that accompany ACORD 27
demonstrate the confusion that can arise when insurance forms are
developed with the interests of non-insurers uppermost.
“Discussions with various lenders indicate
that inclusion of such items as coinsurance is not important with
respect to personal lines polices,” reads the instructions. “The
primary concern is that the amount of insurance is sufficient to
cover the amount of the loan.”
This, no doubt, reflects what lenders want to
see, but personal lines underwriters will detect two flaws in the
logic of the instructions:
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The building property limit reflects what
it would cost to replace a structure, not its market value or
a loan balance. In most cases, the replacement cost will
exceed a mortgage balance, and will not pose a practical
problem. But that's not always the case, especially as
insurers get more sophisticated in determining replacement
cost.
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Failure to meet the 80% coinsurance
requirement can reduce the amount of recovery paid to an
insured in the event of a loss.
Perhaps the biggest departure in the new
series of ACORD forms is the ACORD 28, Evidence of Commercial
Property Insurance, a new form created in consultation with the
Federal National Mortgage Association (“Fannie Mae”), the
Federal Home Loan Mortgage Corporation (“Freddie Mac”), and
the Mortgage Bankers Association (MBA).
Designed to capture detailed information on an
expanding range of coverage options, the ACORD 28 introduces a
list of coverages and provides check boxes to indicate whether a
coverage is in place and spaces to indicate the limit and
deductible. In addition to entries for traditional coverages such
as building property and business income, the ACORD 28 adds
entries for recent insurance considerations, including mold and
terrorism.
For terrorism, the form asks whether terrorism
coverage applies only to “certified” acts of terrorism covered
under the federal reinsurance backstop, whether the coverage
extends to domestic terrorism, and if it is provided through a
stand-alone policy. For any “yes” response, space is provided
to list a terrorism limit and deductible.
Similarly, agents and brokers are provided
space to enter limits and deductibles for mold coverage, or to
identify a mold exclusion.
The ACORD 28 may prove to be a harbinger of
the future if the variety of insurance options continues to grow
as they have in the recent past.
At the IRMI Construction Risk Conference, held
in Chicago in November 2003, after the latest ACORD forms were
released, a panel of risk management and insurance professionals
discussed the desirability of expanding the ACORD certificate of
commercial liability to address the presence or absence of
coverage for professional liability, employment practices
liability, construction defects, “known injury” and other
potential causes of loss.
As more variations arise in insurance
coverage, ACORD certificates may need to be revised more
frequently. No matter how many changes occur, however, it appears
one thing will remain constant.
“Everybody wants it on one page,” says
Volker. He'll strive to comply.
To request copies of the ACORD certificates or
comment on them, contact Volker at jvolker@acord.org
.
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Coming to accord
on ACORD forms
