Effective July 28, 2015 an amendment to the insurance law made it illegal to request or issue a certificate of insurance with language of any kind (including warranties of coverage) not found in the underlying policy. Certificates of insurance law is an important concept to understand.
Anyone who has entered into a business agreement will tell you, “Make sure you get their certificate.” The certificate of insurance (COI) often acts as proof from one party to another of the insurance they have in place. COIs generally include information such as the named insured, carrier, limits, policy numbers, and policy terms. Additionally, they can contain specific wording required by contract/agreement.
Although the majority of certificate requests can be straightforward, many times holders require more of the document than it can provide. Keep in mind the information a certificate can provide should be limited by the contents of the policy. In the past, issuing a certificate with information or wording not found in compliance with the policy would result in an error on the issuing party’s behalf and, if undiscovered, no action would result.
Cue the amended law.
Going forward, effective July 28, 2015, certificate holders cannot require a certificate to include specific items which are not provided within the insurance policy(ies). These items consist of:
- Terms
- Conditions
- Language
- Warranties
- Guarantees
Additionally the new law restricts the acceptable certificate forms which may be used. A complete list of approved forms can be found here.
So why should you care about this law?
Two words: State fines. The Department of Financial Services has approved fines for violators (including issuers and requestors) in the amount of $1,000 for the first offense, and $2,000 for each subsequent offense. These fines can be avoided if proper due diligence is taken.
The best practices to avoid violations, and corresponding fines, would be to consult legal counsel (who should be involved in the contract negotiations anyway) as well as your insurance broker to discuss what can be requested of or complied with. If you are in the midst of negotiations and are not involving legal counsel, or a broker (with respect to insurance matters only) we highly recommend you reach out to each immediately. This may not only prevent an error or fine but may also protect the company in the long run.
In conclusion, it is imperative not to overlook this new certificates law. They key thing to remember as you take a closer look at the wording is requirements. Make sure your requirements reflect the exact requirements set forth by the policy, and New York State won’t hound you. Don’t lose money you don’t have to, stay diligent in your certificates.
(Co-authored by Joe Ragusa & Joffrey Cordero)
