Binding effect on insurance company of representations made in a certificate of insurance. Security National Insurance Co. v. Construction Associates of Spokane, Inc. United States District Court (Eastern District of Washington) (2022), by Hugh Anderson

Summary: Construction Associates of Spokane is a general contractor. An employee of a subcontractor, Merit Electric, was injured on a Construction Associates project and later sued the general contractor seeking damages for the injuries. Construction Associates tendered the lawsuit to Merit Electric’s insurance broker, asserting additional insured status under Merit’s commercial general liability insurance policy. In support of the tender, Construction Associates presented a certificate of insurance, issued by the broker, showing Construction Associates’ additional insured status.

Comment: Unlike Washington, many jurisdictions (perhaps most) do not view certificates of insurance as binding, instead giving full weight to the standard certificate disclaimers (certificate does not alter the policy, etc.). Regardless of jurisdiction, it is good practice to obtain a copy of the actual policy and endorsement to assure Additional Insured status, coverage limits, and other essential requirements.
The EJCDC documents expressly require that Additional Insureds be named as such, rather than attempting to rely on certificates, and in appropriate situations give specific directions regarding the precise endorsement form to use.

The subcontract between Construction Associates and Merit Electric had required Merit to maintain a commercial general liability policy with stated policy limits, and further required Merit to provide Construction Associates with insurance certificates “naming Contractor as an additional insured.” The subcontract did not explicitly require Merit to add Construction Associates (Contractor) as an Additional Insured, and it appears from the record that no endorsement adding Construction Associates was ever issued for the CGL policy in question. The CGL carrier, Security National Insurance, denied coverage, contending that the certificate of insurance informing Construction Associates of its Additional Insured status had been in error and was not binding. The dispute was litigated in federal district court, with the general contractor and the injured worker seeking to compel coverage.

Decision: The federal district court’s decision was based on a recent precedential decision by the Washington Supreme Court, T-Mobile v Selective Insurance Co. of America (2019). That case had also involved a certificate of insurance. The Washington Supreme Court had reiterated the longstanding general rule in Washington:

[A]n insurance company is bound by all acts, contracts, or representations of its agent, whether general or special, which are within the scope of [the agent’s] real or apparent authority notwithstanding they are in violation of private instructions or limitations upon [the agent’s] authority, of which the person dealing with [the agent], acting in good faith, has neither actual nor constructive knowledge.

Based on the T-Mobile case, the federal court in the Construction Associates case ruled as follows:
Ultimately the Court finds that the Washington Supreme Court’s majority opinion is clear. As it repeats throughout the decision: “An insurance company’s agent who makes an authoritative representation binds the insurance company, even when that specific representation is transmitted via a certificate of insurance and is accompanied by general disclaimers.”

Enforcing those authorized representations is good public policy: it provides the principal with an additional incentive to ensure that the agent’s representations—made in person, on the phone, or in writing—are true.

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