A1 Insurance Agency had built a solid reputation it the community.  A1 did this by hiring good employees and compensating them well through pay and benefits.  One such benefit A1 offered its employees was auto coverage at cost.  A1 would waive its commission on auto policies written for employees of the agency.  Cindy the CSR decided to take full advantage of this benefit and she started adding extended family members' autos to her auto policy.  All went well until one of Cindy's cousins had his truck stolen.  Cindy reported a claim to the auto carrier, who denied the claim as Cindy did not have an insurable interest in her cousin's truck.  Cindy's cousin filed suit against A1 Insurance alleging he had paid a premium and received a certificate of insurance from AI showing that his truck was insured. 

What went wrong?   Cindy added extended family members' autos to her auto policy.

What are the major issues in this case? 

1. CSR unaware of the policy requirement that Named Insured needed to have insurable interest in the vehicle (policy interpretation error). 
2. A certificate was issued without verifying proper coverage was in place (Certificate of insurance error). * Most claims involving insurable interest have to do with the ownership of automobiles. 

What could have been done differently by the Agency?  By the Producer?  By the CSR?

1. The policyholder must have an insurable interest in the item being insured.
2. Be sure to ask how a vehicle is titled when a customer wants to add one to their auto policy. 
3. Verify and note the customer has an insurable interest in the property they wish to insure.
4. Prior to issuing a certificate of insurance, agency staff member should verify that coverage is in place for the subject requiring proof of coverage.

What do you think was the outcome?   Claim was settled.

Related Risk Management Resources available:

Certificate of Insurance: Not just a piece of paper David Holt, AVP, Swiss Re Corporate Solutions

The Simple Made Complicated. Certificates of Insurance David Holt, AVP, Swiss Re Corporate Solutions