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Are You Complying With the New Law on Certificates of Insurance?

By: Jana Reist    

      A certificate of insurance is an instrument used to verify that an entity is insured.  Unfortunately, certificates do not always accurately reflect the coverage that is available to the certificate holder.  Up until January 1, 2012, there was no specific law in Texas that regulated certificates of insurance.  As a result, disagreements over the purpose and scope of certificates have been common and lead to much litigation.  As a general rule, Texas courts have found that when the policy language conflicts with the certificate of insurance, the policy language will govern.  That being said, some cases have suggested that agents and brokers may be subjecting themselves to liability for issuing incorrect certificates of insurance.

     In an effort to curtail many of the issues surrounding the issuance of and reliance upon certificates of insurance, the Texas legislature adopted Chapter 1811 of the Texas Insurance Code.  This new law, which went into effect on January 1, 2012, requires all certificates of insurance forms for property and casualty insurance to be filed with and approved by the Texas Department of Insurance before they can be used.  The new statute also reinforces Texas case law that holds that certificates are issued as a matter of information only and confer no rights upon the certificate holder other than those afforded by the insurance policies set out in it. 

     Below are some of the notable “prohibited acts” under the statute:

  • Prohibits a property or casualty insurer or agent from issuing a certificate of insurance or other type of document purporting to be a certificate of insurance that alters, amends or extends the coverage or terms and conditions provided by the insurance policy referenced on the certificate or document.
  • Prohibits an insurer or an agent from issuing a certificate of insurance that has not been filed with and approved by the Texas Department of Insurance.
  • Prohibits a person from requiring an agent or insurer, either in addition to or in lieu of a certificate of insurance, to issue any other document that is inconsistent with Chapter 1811.
  • Prohibits a certificate from containing a reference to a legal or insurance requirement contained in a contract other than the underlying contract of insurance, including a contract for construction or services.

     A form filed with TDI is approved at the expiration of sixty days after the date the form is filed unless the Commissioner by order approves or disapproves the form during the sixty day period.   However, standard certificate of insurance forms promulgated by ACORD, the American Association of Insurance Services, or ISO are deemed approved on the date the form is filed with the Department.

     If the Commissioner has reason to believe that an insurer or agent has violated or is threatening to violate Chapter 1811, the Commissioner may issue a cease and desist order, seek an injunction, impose sanctions, and request the attorney general to recover civil penalties of up to $1,000 for each violation.

     The statute applies to a certificate holder, policyholder, insurer, or agent with regard to a certificate of insurance issued on property and casualty risks located in Texas, regardless of where the certificate holder, policyholder, insurer or agent is located.

     Many agents and contractors alike have concerns regarding the approval process for certificates of insurance and how it will affect their operations and getting projects started quickly.  Because this statute was recently enacted, only time will tell on how this will play out and how effective the statute will be in resolving many of the issues that have plagued certificates of insurance.