The New York Insurance Department (the “Department”) recently issued a draft Supplement No. 1 to Circular Letter No. 20 (2008) (“CL No. 20”) regarding insurance contract certainty for property/casualty insurance policies and reinsurance contracts. The Department is requesting comments on its draft by January 22, 2010.
As previously discussed, the Department issued CL No. 20 on October 16, 2008, as a response to the potential for increased legal risks and complex litigation for insureds, insurers, reinsurers and producers when terms and conditions remain uncertain after policy inception.
CL No. 20 advised insurers and producers doing business in the State of New York that they should, no more than one year from the date of CL No. 20, develop and implement practices to assure that policy documentation is delivered to the insured before, at, or promptly after inception. CL No. 20 also stated that any principles and practices established to ensure contract certainty must comply with all existing statutory or regulatory provisions concerning the content, timing, or delivery of insurance policies. The purpose of Supplement No. 1 is to provide further guidance in response to industry inquiries posed to the Department regarding CL No. 20.
The following are the key points covered in Supplement No. 1:
- Definition of Promptly: To deliver the policy documentation “promptly” after inception is generally interpreted to mean within 30 business days and any extensions beyond that should be carefully documented by insurers with good cause for such delay.
- Allocation of 30-Day Time Period: When a producer intermediates a transaction, the insurer generally should endeavor to deliver policy terms and conditions to the producer within 18 business days post-inception to enable the producer to do its part to implement the processes necessary to check the terms and conditions for accuracy, advise the policyholder, and to interface further with the insurer. The broker then would generally have 12 business days to deliver the contract to the policyholder. Should these frames conflict with the some provision of the New York Insurance Law or Insurance Regulations, the latter provision will control.
- Required Policy Documentation: The Department will use the principles and standards of contract certainty as established in the U.K. and Bermuda as a guide for what sort of policy documentation is necessary for contract certainty (to the extent that they are not inconsistent with the New York Insurance Law or Insurance Regulation). In accordance with those codes of practice, “policy documentation” for purposes of contract certainty should contain all the agreed terms of the contract, and may include an insurance policy, binder of insurance, schedule of cover, signed contract wording, or a complete slip. Documentation of a reinsurance contract can be evidenced by a binder, cover note, or similar documents, provided that it reflects all agreed terms and conditions to which the reinsurers have agreed.
- Enforcement: The Department will focus its enforcement resources on policies issued to: (i) large commercial insureds, written on a standard or manuscript basis; (ii) the special risk market, written pursuant to New York Insurance Law Article 63; (iii) policyholders in the excess line market; and (iv) other insurers via reinsurance. In the latter half of 2010, the Department may issue letters of inquiry to licensees aimed at gathering information regarding how, and to what extent, licensees have developed and implemented practices to assure that contract certainty is routinely achieved.