InSurOp-Ed: Beware Online COI Systems!

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I first addressed this issue about 15 years ago when I began writing and speaking on certificate of insurance (COI) problems that had exploded in the marketplace. However, it now seems as if we are in the middle of a second wave of COI problems, including onerous requirements that agents use specific online COI systems that benefit mainly certificate requestors and, even more so, the owners of these systems.

One of the largest of these systems in 2006 was the City of Los Angeles’s Track4LA, now known as KwikComply. The original system used a proprietary, non-ACORD COI registry with too many downsides to even list here. Through the efforts of the Independent Insurance Agents and Brokers of California, this system was modified to make it at least palatable to agents.

At that time, I was aware of at least a dozen other systems around the country. Since that time, most of them went out of business, merged with other systems, or revised their structure and pricing to be more marketable. This was largely out of necessity due to the combined pushback of insurance agents around the country against onerous systems and use requirements, the worst being that certificates had to be issued using a particular system AND, in many cases, the AGENT had to pay for the privilege of using a proprietary system. These systems had many problems, as outlined below.

A Texas airport authority contracted with one of these online COI vendors because COI verification was FREE to the airport authority. How could the system be offered for free? The airport authority simply required proof of insurance for every entity it contracted with and that such proof MUST be provided using this online system AND the agent providing the evidence of insurance had to PAY to use the system.

For example, one agency insured three concourse vendors in the airport. They had to input insurance coverage information into the system and pay $3 for that privilege. The agency was also required to enter cancellation, nonrenewal, reinstatement, and coverage changes as they occurred.

In addition, any time the airport authority checked the status of coverage, the agency was billed 35 cents. That doesn’t sound like much, but the insurance status for all vendors was checked DAILY. In other words, the agency had to pay about $130 per customer to fund the system, not counting the cost to actually input data and duplicate the information in the agency’s own agency management system. Needless to say, for most concourse vendors, the cost to use this system exceeded the agency’s commission income for that customer and the agency had no control over the data once entered.

Another system enabled the certificate requestor to customize the non-ACORD certificate of insurance by allowing them to ask over 200 questions about the downstream party’s insurance program. Many of these questions were ambiguous or even nonsensical. For example, one of the possible questions was “Broad form contractual (Y/N)?” without any explanation of what this question meant. Another question simply asked, “Independent contractors (Y/N)?” Other included “Primary and Noncontributory (Y/N)?” and “Auto pollution liability (Y/N)?” Clearly the authors had no idea what they were asking. The system required a scanned signature of the agent without any stipulations on how that signature might be used.

Still another system, while using an ACORD 25 format, allowed the downstream party to enter anything desired in the Description of Operations field. Only that insured’s agent would have the authority, under statutory or regulatory law or under the agency/company agreement, to modify the contents of a COI. This system permitted the certificate holder to enter a list of additional insureds at any time, without regard to whether that entity was actually an insured. Again, only the authorized representative of the insurance company has the authority to do this.

As mentioned above, recently I’ve been hit by inquiries from agents around the country about what appears to be an increasing use of these “digital tracking” systems. One inquiry came from Florida where a system was being mandated by several banks. Aside from issues similar to those discussed above, this system is allegedly owned by a company that owns several insurance companies. The inquiring agent was concerned about how his customers’ policy data might be used for marketing or other purposes by these insurers. He was also concerned about his liability under numerous privacy laws in the event of a data breach.

Another Florida agent reported a similar problem with a property management company using a digital insurance verification service that did not use the ACORD format, had none of the ACORD COI disclaimers, and required personal information about the agent. Colorado agents are reportedly encountering similar issues with the increasing use of digital insurance verification demands.

Most recently, Michigan agents have expressed concerns about the use of a proprietary system by a large contractor. Every time a certificate is uploaded to the contractor’s vendor, the agent is charged $15. If separate COIs are used (e.g., one for liability and one for inland marine), there is a separate $15 fee. The upstream party’s construction contract requires that very specific additional insured wording be included on the COI and failure to do so WILL result in additional upload fees.

The contract requirements include the impossible, things like cancellation notice and coverage for “Liability insurance including contractor’s obligations under the indemnification provisions of this contract.” NO CGL policy covers all of a contractor’s obligations to indemnify. It is not clear how negotiations around this language, if possible, are to be conducted and whether fees apply.

Once again, we have an online digital certificate tracking/verification service whose business model is based on the AGENT of the downstream party funding the system.

What is your current experience with these systems? Do you see their use proliferating? Have you carefully read the submission contracts you are required to enter into and understand their legal implications? If you have something to share, please include it in the Comments below.

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