On October 16, 2008, the Superintendent of the New York State Insurance Department (the “Department”), Eric R. Dinallo, issued Circular Letter No. 20 (2008) (the “Circular Letter”) setting forth “contract certainty” expectations for property/casualty policies and reinsurance contracts.
In introducing the Circular Letter, Superintendent Dinallo noted the potential for increased legal risks and complex litigation for insureds, insurers, reinsurers and producers when terms and conditions remain uncertain after policy inception. As an illustrative example, Superintendent Dinallo cited the lack of certainty on insurance policies issued on the World Trade Center before the 9-11 attack, and the six years of litigation that ensued. Superintendent Dinallo and the Department believe that implementing practices providing for contract certainty will reduce costs for all parties and clarify the nature and scope of insurance coverage.
In particular, the Circular Letter addresses those insurers, reinsurers, and producers (collectively, the “Licensees”) issuing and delivering insurance policies and reinsurance contracts on unique or large risks where contract certainty issues arise more often because standardized, pre-approved forms are not used. These include policies involving: (1) large commercial and special risks; (2) risks in the excess line market; and (3) other insurers via reinsurance. The Department expects these Licensees to implement procedures assuring contract certainty.
The Department defines “contract certainty” as having a complete and final agreement as to all terms of an insurance policy or reinsurance contract by the date of inception, and issuing and delivering such policy or contract within 30 days of inception of coverage. Licensees should carefully document any exceptions or extensions to those policies not meeting such contract certainty requirements. Licensees have twelve months from the date of the Circular Letter to develop and implement practices assuring contract certainty and are expected to attain contract certainty in at least 90 percent of their policies and contracts not already subject to more stringent requirements. The Department will use the examinations process, inquiries to Licensees and information gathered from insureds to monitor progress towards contract certainty in the industry.