CertificatesofInsurance,BindersandEvidencesofInsurance:

WhatstheDifference?
ByChrisBurand

Ivisitalotofagenciesandhaveinterviewedhundredsofcustomerservicerepresentatives,
accountmanagers,accountexecutivesandprocessorseveryyear.Ifindthat50percentor
moretodayhaveaseriouslackofbasicknowledgeaboutcertificatesofinsurance,bindersand
evidencesofinsurance.Thelackofknowledgeismoreobviousatthestafflevelbecausethese
arethepeoplewhoprocesstheseforms.However,ahugepercentageofproducersalsodont
knowthedifference,whichcontributesgreatlytotheproblem.Theseproducerstellclients
certainthingscanbedonebecausetheydontknowenoughandthentheytelltheCSRtodoit
anywaywhensheorheadvisesitcantbedone.Thisgreatlyincreaseserrorsandomissions
(E&O)exposure.Italsodetractsgreatlyfromtheagencysprofessionalism.
Binders
Ioftenaskagencypersonnelthequestion,Whatisthebasicdifferencebetweenabinderand
acertificateofinsurance?Farlessthanhalfseemtoknowthatthekeydifferenceisabinderis
acontractofinsuranceandacertificateofinsuranceisaformofproofofinsurance.Theydo
notunderstandthatwhentheybindcoverage,theyarecreatinganinsurancecontract,
whereaswhentheyissueacertificateofinsurance,theyaresimplywarrantingcertain
coveragesexistatagivenmoment.
Thisiswhymanyagencypersonnelusebindersandcertificatesandevidencesofinsurance
almostinterchangeably,whichisahugemistake.Becausebindersarecontracts,thepeople
writingthecontractsabsolutelymustknowwhethertheyhavetheauthoritytodoso.Thisis
whybindingguidelinesareprovidedtoeveryagencythathasbindingauthoritywithaparticular
carrier.Somecarriershavemadeitmoredifficulttofindtheseguidelinesinrecentyears,but
theguidelinesstillexist.
Ioftenfindthatlessthan25percentofanagencysstaffeverhasacopyoftheagencysbinding
authority.Insomecases,agencymanagementdoesnotwantthestafftoknowandsimply
allowsthemtowritebindersanyway.Thisisjustplainstupid.Ifstaffandproducershave
agencymanagementsauthoritytowritebinders,andassumingmanagementwantsthejob
donecorrectly,theymustknowtheagencysbindingauthority!(Guidelinesisamisnomeras
itisreallyalistoftheagencyscontractualbindingauthoritybyline.)
Someagencymanagersdonotwantstafftowritebinders,buttheyfailtocommunicatethisto
thestaff.Atthesametime,sofewstaffreallyunderstandbinders,halfthetimetheyare

bindingrisksandtheydonotevenknowthatswhattheyaredoing.Noneofthesesituations
areinthebestinterestoftheagency.
Hereareafewkeypoints:
1. Iftheagencysaysitwillorisbindingcoverage,ithasissuedabinder.Whetherthe
agencyhasauthority,whetheranactualbinderiscreated(whichisanentirely
differentissue),andwhetherabinderisevennecessarydoesnotmatteroncean
agencyhasstatedcoverageisbound.
2. Justbecauseacarrierstatesitwillwriteariskdoesnotautomaticallymeanthe
companyisbindingtherisk.Writingandbindingarenotnecessarilythesamething.
3. Anagencynever,everhasbindingauthoritywithexcessandsurplus(E&S)markets.
Thus,whenanE&Sbrokerstatesitwillbindarisk,theagencyshouldnevertellthe
clientthattheagencyisbindingtheriskbecauseitisnotthebrokerisbindingthe
risk.Thesemanticsareimportant.Furthermore,anagencyshouldnottelltheclient
thebrokerisbindingtheriskbasedonaconversation.Theagencyshouldgetwhat
theE&Sbrokerpromisedinwriting.
Also,simplybecauseaclientdemandsabinderdoesnotmeantheagencyhastogivetheclient
abinderunlesstheclientreallydoesneedatemporarycontractofinsurance.Iftheclientreally
justneedsproofofinsurance,thentheagencyshouldissuetheproperproofnotabinder.
Veryfewclientspossessinsurancelicenses,sorarelydotheyreallyknowwhatformtheyneed.
Theagencyistheentitywiththelicenseandshoulddowhatisright.
Manytimesbindersareissuedbecausetheinsurancepolicyhasnotbeendelivered.Iam
amazedathowDetroitcanmanufactureanautomobilefasterthansomeinsurancecompanies
canprintaboilerplateinsurancepolicy.Butbethatasitis,agenciesshouldrarelywritea
temporarycontractontopofaninsurancepolicythatalreadyexists.Justbecausethepaper
policyhasnotarrived,doesnotnecessarilymeancoveragedoesnotexist.
EvidencesofInsurance
Inpersonallines,mostinsureds,banksandrealestateagentsneedevidencesofinsurance,not
binders.Thepolicyisineffectbuthasnotarrived.Sowhynotprovideevidenceofinsurance
ratherthanabinder?
CertificatesofInsurance
First,letscallthisareawhatitisamess.Wehaveamishmashoflawsorlackoflawsand
regulationsamongthestatessuchthatwhatworksinonestatedoesnotalwayshaverelevance
inanotherstate.ThishasbecomeincrediblyapparentwiththenewACORDcertificateform.

Second,whenanagencyistryingtogotheextramileforitsinsuredsbyprovidingcertificates
thatfittheirneeds,theyshouldnotoversteptheirauthority.Agentsdonothaveauthorityto
changelanguage,unlessmaybeacarriergivestheagencyexplicitwrittenauthoritytodoso.If
anagencychangesthelanguage,theagencycouldbeviolatingcopyrightlawandchangingthe
insurancecompanysfilingwiththeinsurancedepartment.Everyoneknowswhathappens
whenthereisaclaiminvolvinganagencychangingitsinsurancecompanysfiling,right?The
agencylosestheE&Oclaim!
Third,acertificateisproofofcertaincoverageatacertaintime.Itisnotaninsurancecontract,
itisnotabinder,anditisnotsupposedtobeusedtoincreasecoverage.Ifanyagentsreading
thishavenothadeveryoneintheiragencytaketheVirtualUniversitysCertificateofInsurance
classfromtheIndependentInsuranceAgentsandBrokersofAmerica(IIABA),theyaremakinga
grimmistake.BillWilsondidagreatJobbuildingthisprogram.Thisshouldbeamandatory
classforeveryagency.
GoodPractices
Becausebindersarecontracts,thereismoreE&Oexposureinvolvedwithbindersthanwith
certificatesofinsurance,assumingcertificatesareprocessedcorrectly.Giventhestatisticson
therisingnumberofE&Oclaimsrelatedtocertificates,itisclearthatmanycertificatesarenot
processedcorrectly.ButassuminganagencytakestheVUscertificateclassandbegins
processingthemcorrectly,certificatesshouldbesaferthanbinders.Theneedforbinders
todayisalsolimitedversus20yearsagoandmanyagenciesaredoingtheirbesttonotissue
binders.Moreover,whencertificatesareprocessedcorrectlyandbindersarenotissuedexcept
inraresituations,agenciesspendlesstimeandmoneyservicingaccounts,whichisimportant
today.
Mostimportantthough,knowledgeofthedifferencesamongtheseforms,ofwhichIveonly
touchedlightly,iscritical.Everyoneineveryagencyneedstohaveastrong,basicknowledgeof
thesedifferences.

ChrisBurandispresidentofBurand&Associates,LLC,aninsuranceagencyconsultingfirm.
ReadersmaycontactChrisat(719)4853868orbyemailatchris@burandassociates.com.
NOTE:Noneofthematerialsinthisarticleshouldbeconstruedasofferinglegaladvice,andthe
specificadviceoflegalcounselisrecommendedbeforeactingonanymatterdiscussedinthis
article.Regulatedindividuals/entitiesshouldalsoensurethattheycomplywithallapplicable
laws,rules,andregulations.
March2011