Relates to certificates of insurance

Summary of provisions

Section 1 adds a new article five to the insurance law, which sets forth specific standards for the issuance of certificates of insurance.

Section 501 provides for definitions of the terms "certificate", "certificate of insurance", "certificate holder", "insurance producer", "insurer", "person", and "policyholder."

Section 502 sets forth prohibited practices, including, altering or modifying a certificate of insurance form, knowingly requesting the issuance of a certificate of insurance that contains false or misleading information, issuing a certificate of insurance that alters the terms or coverage provided by the insurance policy, issuing an opinion letter or similar document that is inconsistent with this section. However, an accompanying addendum, with clarifying information is permissible.

Section 503 provides for the applicability of the provisions of this section.

Section 504 provides for enforcement powers of the superintendent, the NYS inspector general, and other appropriate entities.

Section 505 provides for rules and regulations to be adopted by the superintendent.

Section 2 of the bill provides for a 90 day effective date.

Existing law

Under current law, an insurance producer may not add terms or clauses to a certificate of insurance which alter, expand or otherwise modify the terms of the actual policy, unless authorized by the insurer which has filed an appropriate endorsement with the Department of Financial Services. The department may take disciplinary actions against producers that engage in this practice.

However, those parties that make the request for a certificate that alters the terms of the policy are not regulated by the Department of Financial Services and the department has no authority to prohibit them from demanding improper certificates of insurance.

Additionally, existing law does not define certificates of insurance or sets standards for forms.

Justification

Insurance producers are often asked by their commercial insurance clients to provide certificates of insurance to various third parties. A certificate of insurance is commonly used in business transactions as proof that a policy of insurance is in effect. It is a

simple document that merely summarizes the essential terms, conditions, and duration of the contract of insurance that is in effect between the insured and the insurer. Usually, the request for a certificate is made by a party the insured has contracted with to provide services, including city, state, and municipal agencies, public authorities, as well as private contractors.

A problem has existed for many years where various government agencies have required, as a condition of doing business, that an insured supply evidence of insurance on preprinted forms supplied by the agency, These forms often times alter, expand or modify the terms of the subject policy. In other cases, government agencies or private contractors may demand that terms be added to the standard ACORD certificate of insurance form which do not appear in the insurance policy. For example, requests are often made for the certificate to include "hold harmless" agreements or other clauses that alter the language of the policy, as well as statements that the wording of the certificate will control in the event of any inconsistency or conflict between the certificate and the policy.

An insurance producer that is asked to provide these types of altered certificates may not legally do. so. The Department of Financial Services has made it clear that an insurance producer may not add terms or clauses to a certificate of insurance which alter, expand or otherwise modify the terms of the actual policy unless authorized by the insurer which has filed an appropriate endorsement with the Superintendent of Financial Services. The department may seek disciplinary measures against producers who do this.

Insurance producers are being placed in an untenable position. If they do not comply with the request to issue an improper certificate, their insurance client will not be allowed to perform work for the party asking for the certificate. Unfortunately, an insurance producer that complies with the law and refuses to issue an improper. Certificate will often lose the client, who will find another insurance producer willing to ignore the law and issue the improper certificate.

The department has recognized this problem over the years and has issued numerous opinions and two circular letters on this topic (Circular Letter 8 (1995) and Circular Letter 15 (1997)). Circular letter 15 was also issued to city, state, and municipal agencies and other public authorities and corporations, as well as to producers. In the circular letter, the department acknowledges that these government agencies were making requests for improper certificates and advised insurance producer that they may not provide them. Despite the department's efforts, government agencies continue to insist upon certificates of insurance that do not merely act as evidence of insurance, but seek to modify the terms and conditions of coverage.

This bill will remedy this problem by making it a violation of law for any person to request the issuance of a certificate of insurance that contains any false or misleading information.

Legislative history

S.5804 of 2012-13 veto message number 257 of 2013 S.4425-B of 2011-12

Fiscal implications

None.

Effective date

90 days after it shall have become a law.