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PIA Spurs Passage of NCOIL Binder Model, Clearing Way for Certificates Model

The National Conference of Insurance Legislators (NCOIL) overwhelmingly adopted a model law to protect lenders from risks associated with inadequate or non-existent insurance coverage
July 17, 2012

The National Conference of Insurance Legislators (NCOIL) overwhelmingly adopted a model law to protect lenders from risks associated with inadequate or non-existent insurance coverage. The action, which followed hours of debate, paves the way for passage of a model to reform certificates of insurance. Action on certificates of insurance has been elusive for decades.

PIA National President-elect Andrew C. Harris, who represented PIA at the July 15 NCOIL meeting in Burlington, Vermont, has emerged as an industry leader on the certificates issue since he assumed the role as PIA’s lead spokesperson almost a year ago. Differing views on the part of lenders and insurance interests always proved to be a major stumbling block, but Harris’ experience as both an independent insurance agency owner and as vice chairman of the board of directors of a New Jersey community bank positioned him to actively promote a compromise.

“It’s one down and one to go,” said Harris. “PIA commends the state insurance legislators of NCOIL for their leadership in passing a binder that addresses commercial property that does not expire until the policy is issued or cancelled. Now, it’s on to the certificates model. Taken together, these two proposals — one addressing certificates of insurance and the other addressing the binder — may be able to fix three decades of problems.”

PIA proposed that the state legislators adopt a commercial property binder model as a way to separately address the concerns of lenders. The model is based on New York law and would make it clear that binders remain in effect until the policy is issued. State Rep. Matt Lehman (IN), sponsor of the binder model, said that it became clear that until lender concerns were addressed, a certificates bill could not move forward. The binder model makes it clear that binders are proper documents for lenders to rely upon as evidence of coverage before the policy is available because binders are not “for information only” but are a temporary contract of insurance that binds the insurance company to provide coverage. Certificates of insurance, on the other hand, provide confirmation of coverage to third parties who have no rights under the policy and therefore this document is provided “for information only.”

“Today we cleared a major hurdle in our effort to ensure that certificates of insurance are used fairly and appropriately,” said state Rep. Steve Riggs (KY), chair of the NCOIL Property-Casualty Insurance Committee. “We drafted the binder model because we think that lenders have valid concerns with proposed certificates of insurance legislation that would deem all certificates to be ‘for informational purposes.’ Lenders certainly do need more than an informational certificate, especially since they may not see a policy for many months.”

Now, consideration on a proposed substitute version of a Certificates of Insurance Model Act that was offered by the P&C industry will proceed, according to PIA National Assistant Vice President of Industry Affairs David M. Eppstein, Esq. The substitute model was proposed by AIA, IIABA, NAMIC, PIA and PCI. The certificates model aims to clarify limits on certificates and to help prevent fraud and misuse, banning bans changes to certificate forms and asserting that certificates are not insurance policies and cannot provide different coverage than the policy does.

“I am pleased to see the legislators act so quickly and decisively on this issue because it now allows us to focus on the certificates model,” said Eppstein. “NCOIL is now poised to help us resolve several longstanding issues that have been plaguing the P&C industry for years. After the certificates model is passed, we will have more clarity and uniformity as to what certificates and binders should be used for. NCOIL is once again demonstrating that state regulation of insurance is effective and able to deal with these types of issues in a timely manner.”

See the full NCOIL Binder Model Law: NCOIL Insurance Binder Model (passed 7/15/12)