By: Joseph Clark, Esq.
Insurance should be a requirement for any real estate transaction, to protect against a myriad of potential exposure areas. Proof of such insurance comes by way of certificates evidencing coverage. Key to understanding insurance and coverage is having an understanding of the types of certificates of insurance that may be received during a real estate transition.
The real estate practitioner often is presented certificate of insurance as evidence that a party to a real estate transaction (whether it be a loan, a lease, a reciprocal easement agreement, a construction contract or otherwise) has provided the insurance required by the documentation governing the transaction. He or she is likely to receive one of the following forms of certificate of insurance:
1. ACORD 25-S (Certificate of Insurance)
2. ACORD 27 (Evidence of Property Insurance)
3. ACORD 75 (Insurance Binder)
4. A customized form.
ACORD 25-S purports to evidence existing insurance policies which are identified by number, effective date and expiration. The form sets forth the liability limits and contains the following three statements:
A. This certificate is issued as a matter of information only and confers no rights upon the certificate holder. This certificate does not amend, extend or alter the coverage afforded by the policies below.
B. This is to certify that policies of insurances listed below have been issued to the insured named above for the policy period indicated. Notwithstanding any requirement, term of condition of any contract or other document with respect to which this certificate may be issued or pertain, the insurance afforded by the policies described herein is subject to all terms, exclusions and conditions of such policies.
C. Should any of the above described policies be cancelled before the expiration date thereof, the issuing company will endeavor to mail (X) days written notice to the certificate holder named, but failure to mail such notice shall impose no obligation or liability of any kind upon the company, its agents or representatives.
ACORD-25 goes out of its way to advice the certificate holder that she has no right to rely upon the certificate and to make him wonder why he accepted the certificate in the first place.
Like ACORD 25-S, the ACORD 27 certificate purports to evidence existing insurance policies. It appears to be adaptable to any type of physical damage insurance and contains the following statements:
A. This is evidence that insurance as identified below has been issued, is in force, and conveys all the rights and privileges afforded under the policy.
B. The policy is subject to the premiums, forms, and rules in effect for each policy period. Should the policy be terminated, the company will give the additional interest identified below (X) days written notice, and will notification of any changes to the policy that would affect that interest, in accordance with the policy provisions as required by law.
The differences in the between the ACORD 27 and ACORD 25-S certificates are as follows:
A. The ACCORD 27 certificate (i) conveys all the rights and privileges afforded under the policy, (ii) lacks a statement that it does not amend, extend or alter the coverage afforded by the underlying policy, and (iii) contains an unconditional obligation to give advance notice of termination to the certificate holder and to advice the certificate holder (without specifying how far in advance) of any change to the policy which would affect the interest of the certificate holder. However, the ACORD 27 and the ACORD 25 share the notion that the certificate is subject to the terms of the underlying policy or policies.
While the distinctions set forth above may seem nuanced and inconsequential, understanding proper coverage and understanding evidence of same may just make or break the financiability and/or profitability of any individual transaction. The first step to a successful transaction is understanding what you are buying, and here, buying a properly ensured property is a top priority.
For assistance with any real estate matter, contact Ken Kirschenbaum at (516) 747-6700 x. 301 or at Ken@Kirschenbaumesq.com.
About the Author:
Joseph Clark, Esq. is an associate in Kirschenbaum & Kirschenbaum, P.C.'s real estate department and regularly represents clients with leasing, sales, purchases and closings. To contact Joseph Clark, call (516) 747-6700 x. 307 or email him at JClark@Kirschenbaumesq.com.