Does your subcontractor’s certificate of insurance say too much or too little? New requirements for COIs for coverage for property, operations and risks located in Virginia take effect July 1, 2012.

It’s standard fare for contractors and subs to be required to provide certificates of insurance (COI) verifying that the insurance requirements specified in their contracts, e.g., the type of coverage, the coverage policy limits, have been met prior to starting work. According to an April 21, 2011 Administrative Letter issued by Virginia’s State Corporation Commission Bureau of Insurance, in Virginia there’s a “widespread misunderstanding regarding the proper use of [COIs], as well as intentional misuse of such certificates.” In particular, the letter states that “some private and public entitles are requesting insurers and producers to issue certificates of insurance that are inconsistent with the underlying insurance policy or contract.” Examples include “indicating that a person is an additional insured contrary to the terms of the policy” and “that a party will be notified if the underlying policy is cancelled if that party is not entitled to notice under the terms of the policy.” The Administrative Letter can be found here. Legislation passed in March is designed to address these issues.

The new legislation amends the Unfair Trade Practices chapter in Title 38. Insurance of the Code of Virginia and adds a new section on certificates of insurance, § 38.2-518. Specifically, the new section prohibits a person from (1) issuing or delivering a COI that attempts to confer any rights upon a third party beyond what the referenced policy of insurance expressly provides; 2) issuing or delivering a COI (except when the COI is required by a state or federal agency) unless it contains a statement substantially similar to this: “This certificate of insurance is issued as a matter of information only. It confers no rights upon the third party requesting the certificate beyond what the referenced policy of insurance provides. This certificate of insurance does not extend, amend, alter the coverage, terms, exclusions, or conditions afforded by the policy referenced in this certificate of insurance.” It prohibits a person from 3.)knowingly demanding or requiring the issuance of a certificate of insurance from an insurer, producer, or policyholder that contains any false or misleading information concerning the policy; and 4.) knowingly preparing or issuing a COI that contains false or misleading information or that purports to affirmatively or negatively alter, amend, or extend the coverage provided by the policy. Further, 5.) no COI may represent an insurer’s obligation to give notice of cancellation or nonrenewal to a third party unless the giving of the notice is required by the policy. These provisions apply to all certificate holders, policy holders, insurers, insurance producers, and COI forms issued as statement or summary of insurance coverages on property, operations, or risks located in Virginia. The new legislation also authorizes the State Corporation Commission to regulate issuers and requesters of COIs for the first time. Click here for the text of the bill as passed.