A situation that frequently arises in the construction industry is one in which a named insured calls its insurance broker and requests that a third party be added as an additional insured on the insured’s liability policy. This situation generally arises in the subcontractor/insured-general contractor/additional insured context.
Most frequently, in the subcontractor-general contractor relationship, the general contractor will require a certificate of insurance from the subcontractor, indicating that the general contractor is named as an additional insured on the subcontractor’s policy. This is often a requirement of the written contract between the subcontractor and the general contractor or the owner. In these situations, the subcontractor/insured will typically call the producing broker and request that the contractor be added as additional insured on its policy, and that a certificate of insurance be provided as evidence of this fact for the benefit of the general contractor. The certificate of insurance typically used by agents (ACORD 25-S) contains the following disclaimer language:
This certificate is issued as a matter of information only and confers no rights upon the certificate holder. This certificate does not amend, extend or alter the coverage afforded by the policies below.
The ACORD certificate of insurance also provides as follows:COVERAGES
THIS IS TO CERTIFY THAT POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THER POLICY PERIOD INDICATED. NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL TERMS, EX-CLUSIONS, AND CONDITIONS OF SUCH POLICIES.
When a certificate of insurance is issued, the certificate holder may attempt to argue that, since the certificate represents the existence of types of coverage with specific limits, the certificate holder should be entitled to those coverages and those limits without condition. However, where there is a disclaimer, such as that contained in the ACORD form certificates, such a position has been flatly rejected by Illinois courts.
The Controlling Case Law
The law in Illinois is well settled that where a certificate of insurance includes a disclaimer that the certificate does not amend, extend or alter the coverages afforded by the policy, the certificate holder must look to the policy itself to determine the scope of coverage, including all policy exclusions. In the cases that have considered this question, the courts have uniformly held that the disclaimer puts the certificate holder on notice that it cannot rely on the certificate to define coverage, but is obligated to look to the underlying policy to determine the scope of coverage and exclusions.1
The disclaimer language, however, is necessary. There are two lines of Illinois cases addressing the issue of coverage when there is a certificate of insurance separate from the policy itself. In the line of cases dealing with the situation where the certificate does not refer to the policy (there is no disclaimer), and the terms of the certificate conflict with the terms of the policy, the courts found that the certificate language governs the extent and terms of coverage.2 The second line of cases deals with the situation where there is a certificate issued that refers to the policy and expressly disclaims any coverage other than that contained in the policy itself. In these cases, the courts have consistently found that the policy governs the extent and terms of coverage.3
The case of Pekin Insurance Company vs. American County Insurance concerned a certificate of insurance that contained the standard disclaimer, stating that the certificate was "issued as a matter of information only, and confers no rights upon the certificate holder. This certificate does not amend, extend or alter the coverage afforded by the policies below. . . . The insurance afforded by the policies described herein is subject to all of the terms, exclusions, and conditions of such policies."4 The Pekin court held that this phrase put the insured on notice that the insurance coverage was governed by the terms of the underlying policy rather than the certificate of insurance. Any arguable conflict between the policy terms and the language contained in the certificate was removed by the disclaimer, which plainly advised the additional insured that it could not rely on the certificate to determine the types and limits of coverage.5 This well-settled rule of law applies regardless of whether the broker is deemed to be the agent of the insurer.
The court in American Country Insurance Company v. Kraemer Brothers6 summarized the distinction between certificates of insurance that contain a disclaimer and those that do not contain a disclaimer. In Kraemer Brothers, Kraemer, a general contractor seeking coverage under a subcontractor’s insurance policy, argued that the insurer could not assert exclusions in the policy to deny coverage because the insurer’s agent, who was specifically authorized to issue certificates of insurance on behalf of the insurer, issued a certificate of insurance promising broad general liability coverage, and the policy terms, exclusions and conditions were unwritten and undisclosed at the time of the loss. The certificate of insurance in Kraemer contained the ACORD disclaimer language set forth above.
In upholding the insurer’s denial of coverage, based upon the limiting language in the certificate of insurance, the Kraemer Brothers court stated:
The decision in Pekin…is instructive on this issue. In that case a general contractor was named an additional insured on a commercial general liability policy procured by a subcontractor. The certificate of insurance issued to the general contractor by the insurer indicated that it was a commercial general liability policy but specified no exclusions, terms or conditions of the policy. The certificate also included a disclaimer stating that it "is issued as a matter of information only" and that "the insurance afforded by the policies described herein is subject to all of the terms, exclusions, and conditions of such policies." 213 Ill.App.3d at 544… The general contractor never received a copy of the policy.
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The [Pekin] court …[held] that the disclaimers clearly showed that the certificate was not part of the policy and that the certificate holder had to look to the policy to determine the extent of coverage. The certificate only served to inform the general contractor that it had the same coverage as the subcontractor. The court held that the terms of the policy prevailed and the defendant had no duty to defend.
The presence or absence of such a disclaimer on the certificate of insurance determines whether an insured may rest its coverage case on representations made in the certificate. If the certificate does not include a disclaimer, the insured may rely on representations made in the certificate . . . . If the certificate includes a disclaimer, the insured may not rely on representations made in the certificate but must look to the policy itself to determine the scope of coverage . . . .
The certificate issued to Kraemer in this case contained a disclaimer identical to the one in Pekin Insurance Co. Kraemer was on notice that it had to look to the policy to determine the extent of coverage and any exclusions, yet the record indicates that Kraemer did not even request a copy of the policy. The certificate of insurance clearly provided that it was not part of the policy and that the insured had to look to the policy to ascertain the extent of coverage. Therefore, Kraemer is bound by the exclusions and conditions of the policy.7
The foregoing cases establish that where a person or company is added as an additional insured by a broker working for an insured, that additional insured is an additional insured of the carrier, but its coverage is limited by the terms of the carrier’s policy, when the disclaimer is included in the certificate of insurance.
Where no coverage is provided to the additional insured under the policy, the consequences for the insured can be severe. In Illinois, where an indemnitor breaches its contractual duty to obtain additional coverage for the indemnitee, the indemnitor is liable for all damages that result from the breach, including the amount of judgments against the indemnitee and costs of defense.8 However, where the certificate of insurance does not contain the disclaimer (or where the agent/broker modifies the standard disclaimer in such a way as to eliminate the operative language), the insurer cannot rely on policy provisions inconsistent with the terms of the certificate of insurance.
1 See, e.g., Pekin Insurance Company vs. American County Insurance, 213 Ill.App.3d 543, 572 N.E.2d 1112 (1st Dist. 1998).
2 See, e.g., International Amphitheater vs. Vanguard Underwriters, 177 Ill.App.3d 555, 532 N.E.2d 493 (1st Dist. 1988); John Bader Lumber vs. Employers Insurance of Wausau, 110 Ill.App.3d 247, 441 N.E.2d 1306 (1982); and J.M. Corbett Company vs. Insurance Company of North America, 43 Ill.App.3d 624, 357 N.E.2d 125 (1976) (all holding that where the terms of the certificate conflicted with the terms of the policy, the insured was not aware of the exclusions in the policy, and the certificate did not warn of further exclusions, the certificate would govern the terms of the insurance contract).
3 See, e.g., American Country Insurance vs. Kraemer Brothers Inc., 298 Ill.App.3d 805, 699 N.E.2d 1056 (1st Dist. 1998); Pekin, supra; and Leszak & Levy vs. Illinois Employers Insurance, 121 Ill.App.3d 954, 460 N.E.2d 475 (1984) (all holding that where the certificate of insurance contains a disclaimer, the additional insured may not rely on the certificate but must look to the policy itself to determine the scope of coverage).
4 572 N.E.2d at 1114.
5 Id.; accord, THE Insurance Company vs. City of Alton, 227 F. 3d 802 (7th Cir. 2000, applying Illinois law) (the operative language in the disclaimer is the language stating that the certificate does not alter, amend or extend the coverage of the underlying policy; court rejected the claimed "ambiguity" between the certificate and policy).
6 298 Ill.App.3d 805, 699 N.E.2d 1056 (1st Dist. 1998).
7 699 N.E.2d at 1061.
8 See, e.g., Lulich v. Sherwin-Williams Co., 799 F.Supp. 64, 69 (N.D.Ill. 1992) (applying Illinois law).
James P. Marsh, Editor, is a partner in the Downers Grove firm of Momkus Ozog & McCluskey, LLC. He concentrates his practice in the areas of product liability defense, professional liability defense and general casualty defense. Mr. Marsh received his B.S. in 1983 from Eastern Illinois University and his J.D. from The John Marshall Law School in 1988.