Certificates of Insurance Legislation Signed by Texas Governor
By Stephanie K. Jones | July 4, 2011
Texas Gov. Rick Perryhas signed into law a measure backed by agents that requires regulatory approval of property and casualty certificate of insurance forms provided to insureds as proof of insurance coverage.
Certificates of insurance are widely used in commercial insurance and agents traditionally have been asked to provide them to insureds. As a result agents are often brought into policy disputes because of language contained in the certificates.
Under Senate Bill 425, only certificates approved by the Texas Department of Insurance may be issued. The bill allows for both a fee for filing a certificate with the department and penalties for noncompliance.
The Independent Insurance Agents of Texas worked with various stakeholders to help craft the legislation. IIAT Executive Director David VanDelinder explained the importance of the measure to agents and what to look for in its implementation.
Insurance Journal: Why was the certificate of insurance legislation necessary?
David VanDelinder: Certificates are supposed to be simply evidence that there’s insurance in place to protect a third party that may be relying on that insured for some work that’s being done. So it’s basically a message to a third party that there is insurance in effect when you need it.
What the third party started doing over time, however, is trying to get the certificates to replace the insurance policy by guaranteeing certain things would be true. For instance, they might have a contract with that insured that requires them to indemnify or protect that third party. And they want the certificate to say that this protects me in that situation. So it went way beyond the typical certificate, which says I’ve got liability coverage and this limit. …
So we were being asked with more and more frequency to certify issues that we could not have a judgment on, because we’re not attorneys, and there were situations where they were asking for terms of coverage that didn’t exist and couldn’t be done.
And yet we were in a situation where we had no leverage. We pretty much had to sign some of these certificates because our insured couldn’t work the next day if he didn’t produce a certificate of insurance.
So it was an attempt by third parties to leverage the situation to get more of what they wanted into a certificate. And that’s not good for them either because the ultimate result is agents end up issuing ambiguous or inaccurate certificates.
IJ: How does the legislation that has passed address those issues?
VanDelinder: It requires any non-standard certificate form – a standard form would be typically the ACORD form or some of the other national forms that were published years ago for this purpose – but any non-standard form created by a third party would have to first be approved by the Department of Insurance.
And the department, we hope, is going to look at some of these issues where we are being asked to certify things that we can’t certify and eliminate those from the certificates. As a practical matter in other states where this has been done, a lot of time those third parties that have had these non-standard certificates simply say ‘OK we’ll just take the ACORD form or we’ll take one of these standard certificates.’ That’s really what we would prefer.
IJ: Have you been working with TDI to craft the legislation?
VanDelinder: We certainly ran it by them. They offered some changes in language, which were amended into the bill. We worked with the general contractors, we worked with the oil and gas people, we worked with municipalities to make sure that everyone was clear on what we were trying to accomplish. One of the reasons the bill passed is that we had the people most affected by it onboard with the legislation.
IJ: Do you have any expectations about how TDI will implement it or any concerns about what they might do?
VanDelinder: Well, yes, we are concerned. I think implementation is going to be everything here. … We will be close to the process and hopefully engaged in providing advice to them about some of the rules that should exist. But ultimately, it’s going to be the experts at TDI that review these forms and approve them or disapprove them.
Certificates of insurance are widely used in commercial insurance and agents traditionally have been asked to provide them to insureds. As a result agents are often brought into policy disputes because of language contained in the certificates.
Under Senate Bill 425, only certificates approved by the Texas Department of Insurance may be issued. The bill allows for both a fee for filing a certificate with the department and penalties for noncompliance.
The Independent Insurance Agents of Texas worked with various stakeholders to help craft the legislation. IIAT Executive Director David VanDelinder explained the importance of the measure to agents and what to look for in its implementation.
Insurance Journal: Why was the certificate of insurance legislation necessary?
David VanDelinder: Certificates are supposed to be simply evidence that there’s insurance in place to protect a third party that may be relying on that insured for some work that’s being done. So it’s basically a message to a third party that there is insurance in effect when you need it.
What the third party started doing over time, however, is trying to get the certificates to replace the insurance policy by guaranteeing certain things would be true. For instance, they might have a contract with that insured that requires them to indemnify or protect that third party. And they want the certificate to say that this protects me in that situation. So it went way beyond the typical certificate, which says I’ve got liability coverage and this limit. …
So we were being asked with more and more frequency to certify issues that we could not have a judgment on, because we’re not attorneys, and there were situations where they were asking for terms of coverage that didn’t exist and couldn’t be done.
And yet we were in a situation where we had no leverage. We pretty much had to sign some of these certificates because our insured couldn’t work the next day if he didn’t produce a certificate of insurance.
So it was an attempt by third parties to leverage the situation to get more of what they wanted into a certificate. And that’s not good for them either because the ultimate result is agents end up issuing ambiguous or inaccurate certificates.
IJ: How does the legislation that has passed address those issues?
VanDelinder: It requires any non-standard certificate form – a standard form would be typically the ACORD form or some of the other national forms that were published years ago for this purpose – but any non-standard form created by a third party would have to first be approved by the Department of Insurance.
And the department, we hope, is going to look at some of these issues where we are being asked to certify things that we can’t certify and eliminate those from the certificates. As a practical matter in other states where this has been done, a lot of time those third parties that have had these non-standard certificates simply say ‘OK we’ll just take the ACORD form or we’ll take one of these standard certificates.’ That’s really what we would prefer.
IJ: Have you been working with TDI to craft the legislation?
VanDelinder: We certainly ran it by them. They offered some changes in language, which were amended into the bill. We worked with the general contractors, we worked with the oil and gas people, we worked with municipalities to make sure that everyone was clear on what we were trying to accomplish. One of the reasons the bill passed is that we had the people most affected by it onboard with the legislation.
IJ: Do you have any expectations about how TDI will implement it or any concerns about what they might do?
VanDelinder: Well, yes, we are concerned. I think implementation is going to be everything here. … We will be close to the process and hopefully engaged in providing advice to them about some of the rules that should exist. But ultimately, it’s going to be the experts at TDI that review these forms and approve them or disapprove them.
| 82R20567 TRH-F | ||
| By: Carona, et al. | S.B. No. 425 | |
| (Hancock) | ||
| Substitute the following for S.B. No. 425: No. | ||
|
| ||
|
| ||
| relating to property and casualty certificates of insurance and | ||
| approval of property and casualty certificate of insurance forms by | ||
| the Texas Department of Insurance; providing penalties. | ||
| BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: | ||
| SECTION 1. Subtitle A, Title 10, Insurance Code, is amended | ||
| by adding Chapter 1811 to read as follows: | ||
| CHAPTER 1811. CERTIFICATES OF PROPERTY AND CASUALTY INSURANCE | ||
| SUBCHAPTER A. GENERAL PROVISIONS | ||
| Sec. 1811.001. DEFINITIONS. In this chapter: | ||
| (1) "Agent" means a person required to hold a license | ||
| as a property and casualty agent or surplus lines agent. | ||
| (2) "Certificate holder" means a person, other than a | ||
| policyholder: | ||
| (A) who is designated on a certificate of | ||
| insurance as a certificate holder; or | ||
| (B) to whom a certificate of insurance has been | ||
| issued by an insurer or agent at the request of the policyholder. | ||
| (3) "Certificate of insurance" means a document, | ||
| instrument, or record, including an electronic record, no matter | ||
| how titled or described, that is executed by an insurer or agent and | ||
| issued to a third person not a party to the subject insurance | ||
| contract, as a statement or summary of property or casualty | ||
| insurance coverage. The term does not include an insurance binder | ||
| or policy form. | ||
| (4) "Electronic record" has the meaning assigned by | ||
| Section 322.002, Business & Commerce Code. | ||
| (5) "Insurance" means an insurance contract for | ||
| property or casualty insurance. | ||
| (6) "Insurer" means a company or insurance carrier | ||
| that is engaged in the business of making property or casualty | ||
| insurance contracts. The term includes: | ||
| (A) a stock fire or casualty insurance company; | ||
| (B) a mutual fire or casualty insurance company; | ||
| (C) a Mexican casualty insurance company; | ||
| (D) a Lloyd's plan; | ||
| (E) a reciprocal or interinsurance exchange; | ||
| (F) a county mutual insurance company; | ||
| (G) a farm mutual insurance company; | ||
| (H) a risk retention group; | ||
| (I) the Medical Liability Insurance Joint | ||
| Underwriting Association under Chapter 2203; | ||
| (J) the Texas Windstorm Insurance Association | ||
| under Chapter 2210; | ||
| (K) the FAIR Plan Association under Chapter 2211; | ||
| (L) an eligible surplus lines insurer; and | ||
| (M) any other insurer authorized to write | ||
| property or casualty insurance in this state. | ||
| (7) "Lender" has the meaning assigned by Section | ||
| 549.001. | ||
| (8) "Person" means: | ||
| (A) an individual; or | ||
| (B) a partnership, corporation, limited | ||
| liability company, association, trust, or other legal entity, | ||
| including an insurer or a political subdivision or agency of this | ||
| state. | ||
| (9) "Policyholder" means a person who has contracted | ||
| with a property or casualty insurer for insurance coverage. | ||
| (10) "Record" has the meaning assigned by Section | ||
| 322.002, Business & Commerce Code. | ||
| Sec. 1811.002. APPLICABILITY. (a) This chapter applies to | ||
| a certificate holder, policyholder, insurer, or agent with regard | ||
| to a certificate of insurance issued on property or casualty | ||
| operations or a risk located in this state, regardless of where the | ||
| certificate holder, policyholder, insurer, or agent is located. | ||
| (b) This chapter may not be construed to apply to: | ||
| (1) a statement, summary, or evidence of property | ||
| insurance required by a lender in a lending transaction involving: | ||
| (A) a mortgage; | ||
| (B) a lien; | ||
| (C) a deed of trust; or | ||
| (D) any other security interest in real or | ||
| personal property as security for a loan; | ||
| (2) a certificate issued under: | ||
| (A) a group or individual policy for: | ||
| (i) life insurance; | ||
| (ii) credit insurance; | ||
| (iii) accident and health insurance; | ||
| (iv) long-term care benefit insurance; or | ||
| (v) Medicare supplement insurance; or | ||
| (B) an annuity contract; or | ||
| (3) standard proof of motor vehicle liability | ||
| insurance under Section 601.081, Transportation Code. | ||
| Sec. 1811.003. RULES. The commissioner may adopt rules as | ||
| necessary or proper to accomplish the purposes of this chapter. | ||
| Sec. 1811.004. FILING FEE. (a) The department may collect a | ||
| fee in an amount determined by the commissioner for the filing of a | ||
| new or amended certificate of insurance form under this chapter. | ||
| (b) The fee may not exceed $100. | ||
| (c) A fee collected under this section shall be deposited to | ||
| the credit of the Texas Department of Insurance operating account. | ||
| [Sections 1811.005-1811.050 reserved for expansion] | ||
| SUBCHAPTER B. PROHIBITED ACTS AND PRACTICES | ||
| Sec. 1811.051. ALTERING, AMENDING, OR EXTENDING THE TERMS | ||
| OF AN INSURANCE POLICY; CONTRACTUAL RIGHTS OF CERTIFICATE HOLDER. | ||
| (a) A property or casualty insurer or agent may not issue a | ||
| certificate of insurance or any other type of document purporting | ||
| to be a certificate of insurance if the certificate or document | ||
| alters, amends, or extends the coverage or terms and conditions | ||
| provided by the insurance policy referenced on the certificate or | ||
| document. | ||
| (b) A certificate of insurance or any other type of document | ||
| may not convey a contractual right to a certificate holder. | ||
| Sec. 1811.052. USE OF APPROVED CERTIFICATE OF INSURANCE | ||
| FORMS. (a) An insurer or an agent may not issue a certificate of | ||
| insurance unless the form of the certificate: | ||
| (1) has been filed with and approved by the department | ||
| under Section 1811.101; or | ||
| (2) is a standard form deemed approved by the | ||
| department under Section 1811.103. | ||
| (b) A person may not execute, issue, or require the issuance | ||
| of a certificate of insurance for risks located in this state, | ||
| unless the certificate of insurance form has been filed with and | ||
| approved by the department. | ||
| Sec. 1811.053. ALTERATION OR MODIFICATION OF APPROVED | ||
| CERTIFICATE OF INSURANCE FORMS. A person may not alter or modify a | ||
| certificate of insurance form approved under Section 1811.101 | ||
| unless the alteration or modification is approved by the | ||
| department. | ||
| Sec. 1811.054. ISSUANCE OF FALSE OR MISLEADING CERTIFICATE | ||
| OF INSURANCE. A person may not require the issuance of a | ||
| certificate of insurance from an insurer, agent, or policyholder | ||
| that contains any false or misleading information concerning the | ||
| policy of insurance to which the certificate refers. | ||
| Sec. 1811.055. REQUEST FOR DOCUMENTS IN LIEU OF CERTIFICATE | ||
| OF INSURANCE. A person may not require an agent or insurer, either | ||
| in addition to or in lieu of a certificate of insurance, to issue | ||
| any other document or correspondence, instrument, or record, | ||
| including an electronic record, that is inconsistent with this | ||
| chapter. | ||
| Sec. 1811.056. USE OF DISAPPROVED CERTIFICATE OF INSURANCE | ||
| FORMS. A person who receives written notice under Section 1811.102 | ||
| that a certificate of insurance form filed under this chapter has | ||
| been disapproved by the commissioner shall immediately stop using | ||
| the form. | ||
| [Sections 1811.057-1811.100 reserved for expansion] | ||
| SUBCHAPTER C. CERTIFICATE OF INSURANCE FORMS | ||
| Sec. 1811.101. FILING AND APPROVAL OF FORMS. (a) Except as | ||
| provided by Subsection (b), an insurer or agent may not deliver or | ||
| issue for delivery in this state a certificate of insurance unless | ||
| the certificate's form: | ||
| (1) has been filed with and approved by the | ||
| commissioner; and | ||
| (2) contains the phrase "for information purposes | ||
| only" or similar language. | ||
| (b) If a certificate of insurance form does not contain the | ||
| language required by Subsection (a)(2), the commissioner may | ||
| approve the form if the form states: | ||
| (1) that the certificate of insurance does not confer | ||
| any rights or obligations other than the rights and obligations | ||
| conveyed by the policy referenced on the form; and | ||
| (2) that the terms of the policy control over the terms | ||
| of the certificate of insurance. | ||
| (c) A filed form is approved at the expiration of 60 days | ||
| after the date the form is filed unless the commissioner by order | ||
| approves or disapproves the form during the 60-day period beginning | ||
| the date the form is filed. The commissioner's approval of a filed | ||
| form constitutes a waiver of any unexpired portion of the 60-day | ||
| period. | ||
| (d) The commissioner may extend by not more than 10 days the | ||
| 60-day period described by Subsection (c) during which the | ||
| commissioner may approve or disapprove a form filed by an insurer or | ||
| agent. The commissioner shall notify the insurer or agent of the | ||
| extension before the expiration of the 60-day period. | ||
| (e) A filed form for which an extension has been granted | ||
| under Subsection (d) is considered approved at the expiration of | ||
| the extension period described by that subsection absent an earlier | ||
| approval or disapproval of the form. | ||
| (f) A person may not use a form unless the form has been | ||
| filed with and approved by the commissioner. | ||
| Sec. 1811.102. DISAPPROVAL OF FORMS; WITHDRAWAL OF | ||
| APPROVAL. (a) The commissioner shall disapprove a form filed under | ||
| Section 1811.101 or withdraw approval of a form if the form: | ||
| (1) contains a provision or has a title or heading that | ||
| is misleading, is deceptive, or violates public policy; | ||
| (2) violates any state law, including a rule adopted | ||
| under this code; | ||
| (3) requires an agent to provide certification of | ||
| insurance coverage that is not available in the line or type of | ||
| insurance coverage referenced on the form; or | ||
| (4) directly or indirectly requires the commissioner | ||
| to make a coverage determination under a policy of insurance or | ||
| insurance transaction. | ||
| (b) The commissioner may not disapprove a form filed under | ||
| Section 1811.101 or withdraw approval of a form based solely on the | ||
| fact that the form contains language described by Section | ||
| 1811.101(b). | ||
| (c) An order issued by the commissioner disapproving a form, | ||
| or a notice of the commissioner's intention to withdraw approval of | ||
| a form, must state the grounds for the disapproval or withdrawal of | ||
| approval in sufficient detail to reasonably inform the person | ||
| filing the form of those grounds and the changes to the form | ||
| necessary to obtain approval. | ||
| (d) An order disapproving a form or withdrawing approval of | ||
| a form takes effect on the date prescribed by the commissioner in | ||
| the order. The commissioner may not prescribe a date earlier than | ||
| the 30th day after the effective date of the order, as prescribed by | ||
| the commissioner. | ||
| Sec. 1811.103. STANDARD CERTIFICATE OF INSURANCE FORMS. A | ||
| standard certificate of insurance form promulgated by the | ||
| Association for Cooperative Operations Research and Development, | ||
| the American Association of Insurance Services, or the Insurance | ||
| Services Office (ISO) is deemed approved on the date the form is | ||
| filed with the department. Notwithstanding this section, the | ||
| commissioner may withdraw approval of a standard form under Section | ||
| 1811.102. | ||
| Sec. 1811.104. PUBLIC INSPECTION OF INFORMATION. A | ||
| certificate of insurance form and any supporting information filed | ||
| with the department under this subchapter is open to public | ||
| inspection as of the date of the filing. | ||
| [Sections 1811.105-1811.150 reserved for expansion] | ||
| SUBCHAPTER D. EFFECT OF APPROVAL OF CERTIFICATE OF INSURANCE FORM | ||
| Sec. 1811.151. CONFIRMATION OF POLICY ISSUANCE. A | ||
| certificate of insurance form that has been approved by the | ||
| commissioner and properly executed and issued by a property and | ||
| casualty insurer or an agent constitutes a confirmation that the | ||
| referenced insurance policy has been issued or that coverage has | ||
| been bound. This section applies regardless of whether the face of | ||
| the certificate includes the phrase "for information purposes only" | ||
| or similar language. | ||
| Sec. 1811.152. CERTIFICATE OF INSURANCE NOT POLICY OF | ||
| INSURANCE. A certificate of insurance is not a policy of insurance | ||
| and does not amend, extend, or alter the coverage afforded by the | ||
| referenced insurance policy. | ||
| Sec. 1811.153. RIGHTS CONFERRED BY CERTIFICATE OF | ||
| INSURANCE. A certificate of insurance does not confer to a | ||
| certificate holder new or additional rights beyond what the | ||
| referenced policy or any executed endorsement of insurance | ||
| provides. | ||
| Sec. 1811.154. REFERENCE TO OTHER CONTRACTS. A certificate | ||
| of insurance may not contain 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. | ||
| Sec. 1811.155. NOTICE. (a) A person may have a legal right | ||
| to notice of cancellation, nonrenewal, or material change or any | ||
| similar notice concerning a policy of insurance only if: | ||
| (1) the person is named within the policy or an | ||
| endorsement to the policy; and | ||
| (2) the policy or endorsement or a law, including a | ||
| rule, of this state requires notice to be provided. | ||
| (b) A certificate of insurance may not alter the terms and | ||
| conditions of the notice required by a policy of insurance or the | ||
| law of this state. | ||
| Sec. 1811.156. CERTIFICATE OF INSURANCE ISSUED IN VIOLATION | ||
| OF CHAPTER. A certificate of insurance that is executed, issued, or | ||
| required and that is in violation of this chapter is void and has no | ||
| effect. | ||
| [Sections 1811.157-1811.200 reserved for expansion] | ||
| SUBCHAPTER E. ENFORCEMENT AND REMEDIES | ||
| Sec. 1811.201. POWERS OF COMMISSIONER. (a) If the | ||
| commissioner has reason to believe that an insurer or agent has | ||
| violated or is threatening to violate this chapter or a rule adopted | ||
| under this chapter, the commissioner may: | ||
| (1) issue a cease and desist order; | ||
| (2) seek an injunction under Section 1811.203; | ||
| (3) request that the attorney general recover a civil | ||
| penalty under Section 1811.203; | ||
| (4) impose sanctions on the insurer or agent as | ||
| provided by Chapter 82; or | ||
| (5) take any combination of those actions. | ||
| (b) This section does not prevent or limit any action by or | ||
| remedy available to the commissioner under applicable law. | ||
| Sec. 1811.202. HEARING; NOTICE. (a) The commissioner may | ||
| hold a hearing on whether to issue a cease and desist order under | ||
| Section 1811.201 if the commissioner has reason to believe that: | ||
| (1) an insurer or agent has violated or is threatening | ||
| to violate this chapter or a rule adopted under this chapter; or | ||
| (2) an insurer or agent has engaged in or is | ||
| threatening to engage in an unfair act related to a certificate of | ||
| insurance. | ||
| (b) The commissioner shall serve on the insurer or agent a | ||
| statement of charges and a notice of hearing in the form provided by | ||
| Section 2001.052, Government Code. | ||
| (c) A hearing under this section is a contested case under | ||
| Chapter 2001, Government Code. | ||
| Sec. 1811.203. CIVIL PENALTY; INJUNCTION. (a) A person, | ||
| including an insurer or agent, who wilfully violates this chapter | ||
| is subject to a civil penalty of not more than $1,000 for each | ||
| violation. | ||
| (b) The commissioner may request that the attorney general | ||
| institute a civil suit in a district court in Travis County for | ||
| injunctive relief to restrain a person, including an insurer or | ||
| agent, from continuing a violation or threat of violation of | ||
| Subchapter B. On application for injunctive relief and a finding | ||
| that a person, including an insurer or agent, is violating or | ||
| threatening to violate Subchapter B, the district court shall grant | ||
| the injunctive relief and issue an injunction without bond. | ||
| (c) On request by the commissioner, the attorney general | ||
| shall institute and conduct a civil suit in the name of the state | ||
| for injunctive relief, to recover a civil penalty, or for both | ||
| injunctive relief and a civil penalty, as authorized under this | ||
| subchapter. | ||
| Sec. 1811.204. INVESTIGATION OF COMPLAINTS. (a) The | ||
| commissioner may: | ||
| (1) investigate a complaint or allegation of specific | ||
| violations by a person, including an insurer or agent, who has | ||
| allegedly engaged in an act or practice prohibited by Subchapter B; | ||
| and | ||
| (2) enforce the provisions of this chapter. | ||
| (b) If the commissioner has reason to believe that a person, | ||
| including an insurer or agent, is performing an act in violation of | ||
| Subchapter B, the person shall immediately provide to the | ||
| commissioner, on written request of the commissioner, information | ||
| relating to that act. | ||
| SECTION 2. The changes in law made by this Act apply only to | ||
| a certificate of insurance issued on or after January 1, 2012. A | ||
| certificate of insurance issued before January 1, 2012, is governed | ||
| by the law in effect immediately before the effective date of this | ||
| Act, and that law is continued in effect for that purpose. | ||
| SECTION 3. This Act takes effect September 1, 2011. | ||
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