A recent federal court decision out of Florida once again highlights the ongoing danger of businesses relying on a Certificate of Insurance to their detriment when they need insurance most. Companies entering into contracts routinely ask for and rely on the other side providing a Certificate of Insurance to prove they have been added as an additional insured.
The problem is that insurance companies rarely, if ever, issue the Certificate of Insurance. If an endorsement is not added to the insurance policy, or there are terms in the policy allowing automatic inclusion of an additional insured when required by a contract, the coverage will likely not be there when needed.
Such a scenario is demonstrated in the recent case of DTG Operations, Inc. v. Manheim Remarketing, Inc., et al., 2010 U.S. Dist. LEXIS 84854 (M.D. Fla. Aug. 18, 2010). DTG owns and operates Dollar Rent A Car franchises. DTG entered into a consignment contact with Manheim Auctions to sell some of its rental fleet. The contract called for Manheim to carry GL and auto insurance with limits of no less than $1 million, when the vehicles were in Manheim's custody and control. The contract provision also required that DTG be added as an additional insured, and that a Certificate of Insurance be provided to show that the required insurance was in place and that DTG was an additional insured. This was all very standard in a contractual arrangement that businesses use everyday.
What happened next will not surprise any reader. A Manheim employee had an accident while driving one of DTG's vehicles. The victims sued every company possible for their personal injuries. DTG knew what to do – ask for Manheim and its insurer, American Home Assurance Company, to defend and indemnify it in the personal injury lawsuit. When Manheim and American Home refused, DTG filed an action against them. American Home Insurance filed a motion to dismiss, arguing that it did not owe coverage. DTG responded that it possessed a Certificate of Insurance proving it was an additional insured.
In ruling on the motion, the court stated, "The 'Certificate of Liability Insurance' is not a part of the Insurance Policy and clearly disclaims that it does not confer any 'rights upon the certificate holder' or otherwise 'amend, extend, or alter the coverage' provided by the policy." And therein lies the problem relying on a Certificate of Insurance without also obtaining the actual insurance policy and/or endorsement to confirm how your company has been added as an additional insured.
Yes, it's a headache to obtain the insurance policy's provisions and endorsement from the other side as part of the contract negotiation. Companies hate to be bothered, and it's just easier to hand over a Certificate of Insurance from their broker who issues them at will. However, the certificate is basically not worth the paper it's printed on in most instances. The company wanting to verify and confirm that it's truly an additional insured on another's policy must obtain the relevant insurance policy's provisions and the endorsement actually adding the entity onto the policy. A little extra effort up front can prevent the kind of scenario faced by DTG.
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