To promote “contract certainty,” the New York Insurance Department recently announced in Circular Letter No. 20 (2008) that parties to reinsurance contracts and P&C insurance policies should reach final and complete agreement on all contract terms by contract inception. The Department noted that lack of contract certainty may give rise to misunderstandings about the nature and scope of coverage and exposes the parties to increased legal risk and complex litigation, such as the litigation that followed the World Trade Center disaster.
The Department expects industry to adhere to a set of reasoned principles and practices to enhance contract certainty, and accordingly: (i) in addition to having terms finalized by contract inception, the contract should be executed at or “promptly” after inception (i.e., within 30 days, with any extension being carefully documented); (ii) licensees should strive for contract certainty in at least 90% of such contracts; and (iii) insurers should, within one year, develop and implement appropriate practices. The Department stated that it will verify industry’s progress through various methods, including examinations and inquiries to licensees.