Proof of Insurance – Beware of Acord Forms (Adapted from an article to be published in the New York Business Law Journal)
Banks are often given an ACORD 25 “Certificate” of Liability Insurance and an ACORD 28 “Evidence” of Commercial Property Insurance as proof of insurance. ACORD is an insurance industry trade group that creates forms designed to satisfy the insurance industry, not bank mortgagees or and insurance consumers. An ACORD certificate summarizes information about insurance coverage. However, it is not a contract of insurance and if the insurance policy varies from what the certificate says, or worse if the policy does not exist, the certificate adds nothing.
ACORD forms make this clear. For example, the ACORD 28 “is for information only” and “confers no rights” on the holder of the certificate. The New York Insurance Law, in a statute recently adopted at the request of the insurance lobby, supports this. The law provides that if the language in a certificate is not in the actual policy, the policy prevails and the holder of the certificate is out of luck. The courts in New York support this interpretation. Some courts have gone so far as to argue that the “confers no rights” language defeats a fraud claim against the entity that issues a false certificate.
If you want legally enforceable insurance, get a copy of the insurance policy or a legally enforceable binder issued by the insurance company or a duly authorized agent. On a purchase transaction when there may not be a final policy, get a binder from an agent. Always make sure that your bank is named on the policy or the binder. Specific language, such as 30-day notice of cancellation, must be in the policy or binder. Insurance certificates, no matter who issues them, are no substitute.