In this E&O claim, the loss occurred as a result of the insured sending a certificate of insurance (COI) to a bank for a policy that had been cancelled for non-payment of premium prior to the insured sending the certificate.
The client owed some premium, and there was some confusion as to whether the amount already paid would keep the policy in force. A fire ensued, and a total of $3,000,000-$4,000,000 in damages had been claimed. Both the client and the bank made claims. The bank claimed it would not have loaned money for a mortgage ($400,000), but for their reliance on the certificate. The client claimed that they thought the premium was paid, and relied on the certificate as evidence they had a policy in force. The Utica National companies’ opinion was that the bank’s claim was owed, but not the total amount of the client's claim, as they had not paid the full premium. The claim was settled for $1,000,000.
LESSON: Always check to make sure coverage is active before issuing a certificate of insurance.