What is an Agreement to Provide Insurance?
An agreement to provide insurance is a legal document used by licensed insurers to ensure that both the policyholder and insurer have a clear understanding of their respective obligations and risks. In its simplest terms, an agreement to provide insurance is a written contract between the insurer and the policyholder that details the terms of the insurance coverage provided and the parties’ obligations in case of claim.
The agreement to provide insurance versus the policy. An agreement to provide coverage is a separate document from the policy of insurance. The policy is a comprehensive document outlining the obligations of the insurer and the policyholder. By contrast, the agreement to provide insurance is a short document that usually summarizes the major features of the policy. The agreement to provide insurance provides a synopsis of the following provisions of the related policy:
- list of insureds;
- policy limits;
- policy limits applicable to specific insureds under a policy;
- location and description of property insured;
- policy premium payment obligations;
- date to "Inception";
- date of "Expiration";
- premium payment; and
- list of coverages.
When the policy is purchased for a group of insureds (i.e. – a master policy), the agreement to provide insurance summarizes the group of insureds covered by the policy. In a group policy context, the "Named Insured" listed in the policy will be the entity responsible for paying premiums and reporting claims then the "Insureds" listed in the agreement to provide insurance will be the additional listed individuals/businesses who will benefit from the policy.
Where is an agreement to provide insurance used?
The agreement to provide insurance is used in several contexts. The most common context is an agreement issued with an insurance policy, as described above . An agreement to provide insurance is also used in the context of an application for an insurance policy.
A client (i.e. – a business or an individual) applies for insurance through an application:
- Application (generally speaking) –
- client submits application to an agent or an insurer; and then
- client is issued an agreement to provide insurance while the application is being processed by the insurer.
So long as the insurer provides a policy for the client, the application of insurance and the resulting agreement to provide insurance will become part of the policy.
A broker and an underwriting manager may also enter into an agreement to provide insurance for the accepted Associate Agent applications. In this situation, the Associate Agent provides its application to the Broker or Underwriting Manager for review. If the Associate Agent’s application is acceptable for consideration of a policy by the insurer, then the Associate Agent may be given an opportunity to submit referrals of business for insurance. The Associate Agent would be required to forward the client applications received to the Broker or Underwriting Manager. The Broker or Underwriting Manager would then review the applications and, if acceptable, submit them for consideration of insurance to the insurer. The Broker or Underwriting Manager would expect the Associate Agent to abide by the terms of the agreement to provide insurance by obtaining all required information from the client for submission to the insurer and obtaining the Client’s signature on the application. An agreement to provide insurance is issued to the Associate Agent during the time period (i.e. – usually 60 days) that the Broker or Underwriting Manager is reviewing the application and if the application eventually becomes a policy.
Key Elements of the Agreement Form
In order for the document to be an effective binding agreement, certain fundamental information should be incorporated in the form. Conclusively, the following aspects of an ‘Agreement to Provide Insurance’ form should include: Name of the Parties – The name of the insured and the insurer must be clearly outlined on the agreement. Most forms contain a section where the names of these parties are typed and signed. Forms of Coverage – Clearly state what risks, perils or perils group is the insurer providing coverage for and whether any exclusions apply to the coverage. Policy Limits – Clearly outline what amount the insurer will cover in case of damage or loss that are covered by the insurance. Also, some ‘Agreement to Provide Insurance’ forms provide the specific sections or clauses of the insurance policy which were excluded from the coverage permitted by the agreement. Duration of Coverage – By nature, an agreement to provide insurance should be temporary. There should be clearly defined terms of inception and expiry of the agreement. It should also be clearly stated whether the agreement will be extended or renewed upon expiry. Conditions Precedent – Certain conditions must be met before the insurance cover can become binding and effectual. Such conditions must be spelt out clearly in the agreement. For example, the insurance contract may only be valid if and when the insured pays the required premium before a specific date. Termination Clause – In most cases, this information is included in the policy that the insurer issues to the insured soon after the conclusion of the agreement to provide insurance. If not, details of the termination clause must be spelt out towards the close of the agreement.
The Significance of an Agreement to Provide Insurance
An Agreement to Provide Insurance is not only a courtesy document it is also an essential part of the legal contract between the insurer and the insured. The true purpose of an Agreement to Provide Insurance is to memorialize when and if coverage has been provided pending the completion of underwriting. That is to say, an Agreement to Provide Insurance is often issued before a policy is written. In the insurance context, an Agreement to Provide Insurance serves as an interim agreement to insure something, and should not be treated lightly. For example, if you expect to have coverage for an automobile accident that occurred today for which you provided a Certificate of Insurance as evidence of coverage, and the actual policy does not provide coverage following the agreement to provide insurance, you may be left without coverage. Thus, an insured should always insist on a full policy, no matter how an insurer packages a binder or agreement to provide insurance.
An Agreement to Provide Insurance is a tool providing an insured with overall convenience as it allows the insured to start operations and prevent a waiting period for coverage to begin under a full and final policy. An agreement to provide insurance also protects the insurer because it provides a right to cancel within a certain amount of time and gives notice to the applicant that underwriting is not yet complete. If an agreement to provide insurance is issued with the caveat that the applicant must sign a warranty, that also provides the insurer greater protection because the insurer can assert the warranty as a breach of the application and avoid coverage. If a formal application is required, the Agreement to Provide Insurance does not issue until a full application is submitted to the insurer. An agreement to provide insurance in which the insurer waives additional materials or a signed warranty will protect the insurer from liability despite the fact that the applicant is not yet a risk accepted by the insurer.
Common Missteps
Mistakes to Avoid When Using an Agreement to Provide Insurance Form
One common mistake is assuming that the Perfect Form is available online. However, the Perfect Form may be posted on the Internet. So beware. Always read the document and make sure you’re not over-promising on an insurance form. Never sign a document posted by a seller on a seller’s web site, even if it says you have a "30-day free trial" and you can cancel. If a seller writes a document, be careful. The seller has a huge advantage, and may have written a form which works to the seller’s advantage, but not yours. You need to look out for yourself.
Another mistake is signing an Agreement to Provide Insurance form without reading it. The buyer first needs to understand the form. The buyer must read the form, since the buyer is the party making the representations.
Some buyers sign documents which look like an Agreement to Provide Insurance form , but which are not actually an Agreement to Provide Insurance form. Not all documents tend to come from the California Department of Insurance, because some documents may come from a third-party entity, such as a lender. Is the document provided to you by a lender an Agreement to Provide Insurance form? What is the lender’s role? Is the lender a genuine entity, or just a fictitious name of the buyer himself?
The third mistake is to not have a knowledgeable real estate attorney review the Agreement. How do you know what you are getting into? You don’t. Don’t be unwantedly surprised in the middle of a transaction. You don’t want to be second-guessed six months after you buy a piece of property, and you don’t want to have to spend more money to get an attorney to review the Agreements to Provide Insurance forms you signed.
Preparing a Proper Agreement Form
When it comes to drafting an agreement to provide insurance form, preserving the enforceability of the insurance coverage and avoiding pitfalls is the aim. There are critical pitfalls that must be avoided in order to do so. Here are some steps and best practices when drafting the form:
- Consulting with a qualified insurance attorney to draft or review the agreement to provide insurance form ensures compliance with the law governing the subject matter. It will also ensure the intent of the parties is satisfied.
- Include the correct and necessary information in the description section of the agreement. Providing a thorough and adequate description of the coverage will go a long way in avoiding issues when it comes time to make a claim.
- Always document the relationship between the parties in the agreement. It is not unusual for the relationship between the two parties to change as time goes on. For example, the parties may originally be strangers, however, they may become partners later on. The change in the relationship between the parties will affect the obligations under the agreement.
- Preparing the agreement to provide insurance form is just as important as preparation of the policy itself, if not more so. Drafting the agreement to provide insurance form should be done carefully due to the number of pitfalls. Finally, once the agreement is drafted, seek counsel and legal guidance.
Agreement form FAQs
FAQ 1: Under what circumstances would the Department of Industrial Relations (DIR) require an agreement to provide insurance form?
The DIR generally only requires an agreement to provide insurance form when the contractor has hired employees to work on a project subject to the DIR’s prevailing wage laws. The DIR will not request a form from a subcontractor who hires only independent contractors to work on a prevailing wage project.
FAQ 2: If I am an owner on a contract, may I submit a signature on an agreement for laborers to the Remedial Actions and Compliance Division (RACD)?
No , the RACD does not accept owner tag signatures on agreement to provide insurance forms. Only the contractor or subcontractor may sign the agreement. An owner simply may not be able to certify that a subcontractor has hired employees to perform work subject to the prevailing wage laws.
FAQ 3: How do I access archived records for the agreement to provide insurance forms?
The agreement to provide insurance forms are stored on the DIR’s central governement repository system. Users of the central repository must have a Central Contractor Registry Contract User account to access these forms. Registration is free.
