FAQ 1: In circumstances where a seller or landlord requires the buyer or tenant to produce a Certificate of Insurance, are any rights conferred upon the seller or landlord? Generally, the answer is no. A Certificate of Insurance is not an insurance policy. Rather, a Certificate of Insurance is a document providing evidence that certain general types of insurance coverages and limits have been purchased by the party required to furnish the certificate. The certificate is generally a one-page "Acord Form" provided to the party named as the certificate holder. The document merely serves as evidence of the insurance maintained by the buyer or tenant. Examples of the type of insurance listed on the certificate are: commercial general liability, property, bodily injury, personal injury, advertising injury, automobile and workers compensation.
A certificate holder is not an additional named insured simply because they are named on the Certificate of Insurance. No rights of defense or indemnity are conferred upon the certificate holder just because a Certificate of Insurance has been provided naming them on it.
FAQ 2: In order to be covered under the seller's or the landlord's insurance policy, what does a seller or landlord need to require buyer or tenant to do? Name the seller or landlord as an additional named insured on its insurance policy.
FAQ 3: What must a seller or landlord request in order to be construed as an additional named insured on its insurance policy? A specific request must be made by the insured to the insurance underwriter to add the seller or landlord as an additional named insured to the insurance policy. That is, the existing insurance policy must be amended by the underwriter; whereupon, the additional named insured will have the same rights and responsibilities as the party named as the insured in the policy declarations. This can be accomplished by an endorsement and listing the additional named insured on the declaration page as an additional named insured.
FAQ 4: When the agreement of sale or lease is terminated, are there any options that can be added to existing insurance policies to extend the coverage? Generally, the answer is yes. General liability insurance policies customarily provide provisions which allow for either (a) extended reporting; or (b) tail coverage. Commonly, extended reporting is referred to as an "extended discovery period." An extended discovery period is a designated period of time after the policy has expired. The purpose is to allow the insured to report claims that are made against the policy after the expiration date. The policy limits, occurrence and aggregate limit caps remain the same. The designation "tail" gets its name because the coverage applies as the end of the policy period. Generally in the professional liability or general liability context, a claims made policy provides for the purchase of a "tail" prior to the expiration or cancellation of the policy and covers occurrences, acts or omissions committed on or after the policy expiration date. The policy itself will set forth a formula as to how a premium is calculated depending upon the length of time for which the tail is purchased.
FAQ 5: How does the seller or landlord determine if the buyer's or tenant's insurance policy contains any policy exclusions? All policies issued by insurance companies contain exclusions either within the common policy provisions or by endorsement. The courts have spent decades interpreting policy coverage and exclusions – often without consistency or uniformity. Best practices require the seller or landlord to review the policy exclusions so as not to be lured into a false sense of security by the mere existence of an insurance policy.
Fox Rothschild can be helpful in those circumstances where there is uncertainty about insurance policy coverages.