A recent Pennsylvania Superior Court decision highlights the potential liability insurance brokers
face when issuing certificates of insurance (COIs). The case, Penn Outdoor Services v. Harleysville Insurance Company of New Jersey and
Wharton, Lyon & Lyon, underscores the importance of accurately representing coverage on COIs
and understanding the specific requirements of underlying contracts.

CITATION: Penn Outdoor Servs. LLC v. Harleysville Ins. Co. of N.J., No. 2921 EDA 2022 (Pa.
Super. Ct. June 27, 2024)

Background of the Case

Penn Outdoor Services (Penn) contracted with Longford Landscape and Excavation (Longford) for snow
removal services at an apartment complex in Princeton, New Jersey. Their contract required Longford
to hold Penn harmless and name Penn as an additional insured on Longford’s liability policy.
Specifically, the contract stated that Longford would indemnify Penn “from and against all claims
for damages arising out of the performance of Subcontractor’s duties under this Agreement.”

Wharton, Lyon & Lyon (Wharton), acting as Longford’s insurance broker, provided a Certificate of
Insurance (COI) to Penn. This COI stated that Penn was “included as additional insured for general
liability as respects work performed by named insured per policy form CG7524 12/10 as required by
written contract.”

The underlying Harleysville policy, through Endorsement CG-7524, did indeed provide additional
insured coverage to organizations for whom Longford worked under written contract. However, this
coverage was limited to liability caused “in whole or in part” by Longford. Crucially, the
endorsement also stated that the additional insured coverage would be primary and non-contributory
only “If specifically required by the written contract or agreement.”

When a slip-and-fall injury occurred at the site, Harleysville (Longford’s insurer) denied coverage
to Penn on two grounds:

1. The injury resulted from Penn’s independent negligence, not Longford’s work.
2. Penn’s coverage as an additional insured was excess, not primary, because the Penn/Longford
   contract did not specifically require primary, non-contributory coverage.

Penn ultimately settled the claim for $650,000 and incurred over $200,000 in legal fees. Penn then
sued Harleysville and Wharton for breach of contract, negligence, and bad faith.

Key Legal Question

The central issue was whether Wharton negligently misrepresented Penn’s coverage status on the COI, leading Penn to believe it had primary, non-contributory coverage as an additional insured when it did not.

Specifically, the court had to consider:

1. Did the COI’s language that Penn was included as an additional insured “as required by written
   contract” imply that Penn had primary, non-contributory coverage?
2. Was there a material difference between what the COI implied and what the actual policy
   provided?
3. If there was a difference, did Wharton’s issuance of the COI constitute negligent
   misrepresentation?
   
   

The underlying policy actually provided:

• Additional insured coverage for Penn, but only for liability caused in whole or in part by
  Longford’s work.
• Primary and non-contributory coverage for additional insureds only if specifically required by
  written contract.
  
  

The COI implied:

• Additional insured coverage for Penn “as required by written contract,” which Penn interpreted
  to mean primary, non-contributory coverage given the broad hold harmless language in their
  contract with Longford.
  
  

This discrepancy between the actual policy terms and Penn’s reasonable interpretation of the COI
language based on their contract with Longford formed the basis of the negligent misrepresentation
claim against Wharton.

The Court’s Decision

The Pennsylvania Superior Court affirmed a jury verdict against Wharton, finding sufficient evidence
to support a claim of negligent misrepresentation. The court distinguished this case from previous
decisions, noting that the COI specifically stated Penn was included as an additional insured “as
required by written contract.” Given the underlying contract’s hold harmless provision, the court
found that a jury could reasonably conclude Penn expected primary coverage and that Wharton’s
representation on the COI was negligent.

Implications of the Decision

This Pennsylvania Superior Court decision carries significant weight in the insurance and risk
management landscape, particularly for cases involving certificates of insurance and broker
liability. While the ruling is binding precedent only in Pennsylvania, a state with strict laws regarding deceptive professional conduct, it may
have persuasive authority in other jurisdictions, especially those with similar laws regarding
negligent misrepresentation and insurance broker duties.

The decision emphasizes that courts may interpret COI language in the context of underlying
contractual requirements, even when the COI contains standard disclaimer language. This
interpretation broadens the potential liability for insurance brokers and agents who issue COIs,
particularly in cases where the COI references contractual requirements. The ruling may influence
how courts in other states view the responsibility of brokers to accurately represent coverage on
COIs, potentially leading to increased scrutiny of broker practices across the United States.

This case is particularly relevant in states with similar legal frameworks to Pennsylvania, such as
New Jersey, New York, and Ohio, where courts have previously grappled with issues of broker
liability and the legal weight of COIs. As a result, insurance professionals nationwide should take
note of this decision and consider its potential impact on their practices, especially in industries
like construction where additional insured status and COIs play a crucial role in risk transfer
strategies.

Key Takeaways for Brokers

• Carefully review underlying contracts before issuing COIs
• Ensure COI language accurately reflects policy coverage
• Be cautious about referencing contract requirements on COIs
• Understand the difference between primary and excess coverage in additional insured situations
  
  

Key Takeaways for Insured Parties

• Clearly specify coverage requirements in contracts with subcontractors
• Don’t rely solely on COIs; request and review full policy documents
• Understand the limitations of additional insured status
• Consider requiring specific endorsements for primary/non-contributory coverage
• Carefully review endorsements in addition to COIs (or full policy documents if possible)
  
  

Key Takeaways for Third Parties

• Recognize that COIs have limitations and may not reflect full coverage details
• When possible, request and review actual policy documents and endorsements
• Be aware that additional insured status may provide only excess coverage unless specifically stated otherwise
• Consider implementing more robust insurance verification processes
  
  

Conclusion

This case emphasizes the complexities surrounding COIs and additional insured status. It highlights the need for all parties – brokers, insureds, and third parties – to exercise due diligence in insurance matters.

Advanced insurance verification systems, like Injala’s Asuretify platform, can play a crucial role in mitigating risks associated with COIs. By leveraging AI to analyze full policy documents and endorsements, such tools can provide a more comprehensive and accurate picture of coverage, helping to prevent misunderstandings and potential litigation.

As insurance and contractual relationships grow more complex, relying on technology to enhance traditional verification methods becomes increasingly important. This case serves as a reminder that while COIs are a useful tool, they should not be the sole basis for understanding insurance coverage in business relationships.

LEGAL DISCLAIMER

Views expressed here do not constitute legal advice. The information contained herein is for general guidance of matter only and not for the purpose of providing legal advice. Discussion of insurance policy language is descriptive only. Every policy has different policy language. Coverage afforded under any insurance policy issued is subject to individual policy terms and conditions. Please refer to your policy for the actual language.