Contract Certainty -- NYSID Circular Letter No. 20 (2008)

Earlier today the NYSID issued Circular Letter No. 20 (2008) , entitled "Contract certainty". In pertinent part, it provides:

RE: Contract certainty

This circular letter sets forth the New York State Insurance Department’s position and expectations regarding contract certainty with respect to property/casualty insurance policies and all reinsurance contracts.

“Contract certainty” refers to the complete and final agreement of all terms to an insurance policy or reinsurance contract by the date of inception, and the issuance and delivery of the policy or contract before, at, or promptly after inception. Contract certainty provides greater clarity among insurers (including reinsurers), insureds (including ceding insurers), and producers as to the nature and scope of coverage provided.

Since most policies are written on standardized forms and are subject to prior approval of the Superintendent, this circular letter focuses on those policies where, because of the unique nature or size of the risk, issues regarding contract certainty are most apt to surface. Such policies include those issued to: (1) large commercial insureds, written on a manuscript basis; (2) the special risk market, written pursuant to Insurance Law Article 63; (3) policyholders in the excess line market; and (4) other insurers via reinsurance.

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This Department, too, expects the industry in New York to adhere to a set of reasoned principles and practices to enhance contract certainty. Accordingly, all terms of a policy should be complete and finalized, memorialized, executed, and provided to the insured before, at, or promptly after inception. For the purposes of this Circular Letter, “promptly” should be generally interpreted to mean within thirty (30) days, and any extensions beyond that period should be carefully documented by insurers. Licensees should strive for contract certainty in at least ninety (90) percent of the policies that are not already subject to a more stringent requirement, such as policy forms subject to approval under the New York Insurance Law and regulations promulgated thereunder.

Insurers and producers doing business in the State of New York should, no more than twelve months after the date of this circular letter, develop and implement practices to assure that policy documentation is delivered to the insured before, at, or promptly after inception. The Department will verify industry’s progress toward contract certainty through the examination process, inquiries to licensees, or information obtained from insureds or other parties affected by the transactions.

Any principles and practices established by insurers to ensure contract certainty must comply with all existing statutory or regulatory provisions concerning the content, timing, or delivery of insurance policies.

All coverage determinations begin and end with a review and analysis of policy terms, exclusions and conditions, so having a complete and "certain" copy of an insured's policy to work with is never a bad thing. I'm all for the greater use of electronic forms delivery mechanisms and procedures. The NYSID OGC opined in 2005 that insurers and agents may transmit insurance policy forms to insureds by electronic means and in electronic form if the insured consents to delivery in such manner. See, Delivery of Policy Forms by an Insurer In Electronic Form Only, OGC Opinion 11-23-05.