E&O Tip: Claim Example – Commercial Property Certificate of Insurance

The agency client owed premium for their Commercial Property Policy and there was some confusion as to whether the amount already paid would keep the policy in force. This amount was not sufficient and the policy subsequently cancelled for non-payment. After this cancellation, a certificate of insurance was issued that was provided to the client and their bank. A fire ensued, with damages of $3,000,000–$4,000,000 claimed.

Both the client and the bank made claims against the agent. The bank claimed it would not have loaned $400,000 for the mortgage if not for 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 E&O carrier felt 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. This claim was settled for $1,000,000.

LESSON: Verify with the carrier that coverage is in place before issuing a certificate, particularly if the client has a history of payment issues.