1. Forms
2. IL
3. IL-01-03

Form IL 01 03: Notice Of Cancellation To Designated Additional Insured Or Mortgagee

1. What the form is

Form IL 01 03, titled "Notice Of Cancellation To Designated Additional Insured Or Mortgagee," is an endorsement used in commercial and personal insurance policies. Its primary purpose is to provide a standardized method for an insurance company to notify a designated additional insured or a mortgagee if the insurance policy is being cancelled. This is crucial because these parties have a vested interest in the policy remaining in force, often due to contractual requirements or financial exposure related to the insured property or operations. The form ensures that these interested parties are formally alerted, allowing them to take necessary actions to protect their interests, such as securing alternative coverage or addressing the reason for cancellation.

2. Classes of business it applies to

This endorsement is an "Interline Form," meaning it can be used across various lines of insurance. It is not specific to one type of coverage but rather to the relationship between the insured, the insurer, and third parties with an insurable interest. It commonly applies in situations where:

• Commercial Property Insurance: A mortgagee (lender) on a commercial building will require notification if the property owner's insurance is cancelled to ensure their collateral is protected. For instance, if a business owner fails to pay their property insurance premium, this form ensures the bank holding the mortgage is informed.
• Commercial General Liability (CGL) Insurance: An additional insured, such as a landlord named on a tenant's CGL policy, would need to be notified of cancellation. For example, a general contractor who requires subcontractors to name them as an additional insured on their liability policies would use this form to be notified if a subcontractor's policy is cancelled.
• Business Auto Policies: If a vehicle is financed, the lender (loss payee or lienholder) will require notification if the commercial auto policy is cancelled.
• Personal Lines (Homeowners and Auto): Similar to commercial lines, mortgagees on homes or lienholders on vehicles require notification of cancellation. For example, if a homeowner stops paying their insurance, the mortgage company needs to know so they can place coverage to protect their financial interest in the property.

3. Special considerations

Several important factors should be considered when using or encountering form IL 01 03:

• Mandatory vs. Optional: The requirement to notify additional insureds or mortgagees of cancellation is often dictated by state law, the terms of the insurance policy itself, or underlying contracts (e.g., loan agreements, leases). This form provides a mechanism to fulfill those requirements.
• Notice Period: The timing of the notice is critical and often subject to state regulations, which can vary. For example, notice for non-payment of premium might be shorter (e.g., 10 days) than for other cancellation reasons (e.g., 30 or 60 days). Agents and insurers must ensure compliance with the applicable state's notice period requirements.
• Delivery of Notice: Proper delivery of the cancellation notice to the address on file for the additional insured or mortgagee is essential for the notice to be considered valid.
• Impact on Additional Insured/Mortgagee: Upon receiving this notice, the additional insured or mortgagee has an opportunity to address the potential lapse in coverage. A mortgagee, for instance, might pay the premium on behalf of the insured to keep the policy in force or obtain lender-placed insurance.
• No Coverage Granted by This Form: It's important to remember that this form itself does not provide any coverage. It is solely a notification mechanism. The rights of the additional insured or mortgagee are still governed by the policy language and any applicable endorsements that grant them their status and define their rights.

Real-world example: A construction project owner requires all contractors to list them as an additional insured and provide proof of insurance. If a contractor's policy is cancelled mid-project, Form IL 01 03 would be used to notify the project owner, allowing them to halt work or take other measures until coverage is reinstated or replaced, thus avoiding uninsured liability exposure.

4. Key information for agents and underwriters

• Risk Assessment: While this form is procedural, the need to frequently send such notices for a particular insured could indicate instability or increased risk associated with that insured (e.g., frequent non-payment of premium).
• Underwriting Guidelines: Underwriters should ensure that the system for issuing these notices is robust and complies with all state-specific requirements for notification, as failure to properly notify can have legal and financial consequences for the insurer. Some states have very specific rules about who must be notified and the timeframe for that notification.
• E&O Prevention for Agents: Agents should ensure that all parties requiring notice of cancellation (as per contracts their clients have entered into) are correctly listed on the policy to receive such notices. Failure to do so could lead to an Errors & Omissions (E&O) claim against the agent if a loss occurs after a policy cancels without proper notification to an interested third party. For example, if an agent fails to list a mortgagee and the policy cancels without the mortgagee's knowledge, and then a fire destroys the property, the agent could be held liable by the mortgagee.
• Documentation: Insurers must maintain meticulous records of when and how these notices were sent, as proof of mailing is often sufficient to effect cancellation.
• Distinction from Certificate of Insurance (COI): While a COI provides information about coverage at a point in time and may indicate that a party will be notified of cancellation, the IL 01 03 is the actual endorsement that formalizes the insurer's obligation to send that notice to the specified additional insured or mortgagee. A COI often states that the insurer will "endeavor" to provide notice but that failure to do so imposes no obligation or liability. This endorsement, when part of the policy, creates a more concrete obligation.