On March 6, Gov. Andrew Cuomo signed into law an amendment to New York Insurance Law with regards to certificates of insurance. The new law, which goes into effect on July 28, will have a significant impact on New York insurance agents and brokers. In this issue of The E&O Report, we will review some of the highlights of the law, as well as discuss how insurance agents and brokers should handle certificates of insurance.

Certificate of Insurance Form

The new law defines a certificate of insurance as “any document or instrument or addendum thereto no matter how titled or described, prepared or issued by an insurer or insurance producer as evidence of property/casualty insurance coverage.” Based on this broad description, a certificate will include any document, other than a policy or insurance binder that is used as evidence of insurance coverage. The new law limits what is an acceptable form to be used for certificates of insurance. Pursuant to the law, the form must either be provided by the insurer or the superintendent of the New York State Department of Financial Services must approve the form, such as the ACORD 25 certificate of insurance form. Thus, an insured, including any governmental entity, may not use its own manuscript certificate form, but must only use a form issued by the insurance company or approved by the NYDFS superintendent.

The Inclusion of Additional Language on the Certificate is Limited

The law specifically states that “no person or governmental entity shall willfully require the inclusion of terms, conditions or language of any kind, including warranties or guarantees” to a certificate of insurance unless the insurance policy referenced in the certificate “expressly includes such terms, conditions or language.” (This provision does not preclude an insurer or an insurance producer from clarifying the terms of a policy or endorsement).

In effect, this provision prohibits any person or governmental entity from asking that additional language to be added to the certificate of insurance. Therefore, an agent or broker should not add language such as is often requested that the additional insureds are covered on a “primary and non-contributory basis” unless such language is specifically contained within the applicable insurance policy. Further, a request cannot be made that a certificate guarantee or warranty that certain exclusions are not contained within a policy, such as cross-liability exclusion or a third-party/employee exclusion.

Certificate Confers No Benefits or Rights

The statute also includes language concerning the fact that the certificate confers no benefits or rights as is common on most certificates of insurance. Specifically, the statute indicates that “a certificate of insurance shall not amend, extend or alter the coverage provided by the insurance policy to which the certificate of insurance makes reference.”

Enforcement

A violation of the new law subjects the person or entity to a fine of $1,000 for the first violation and $2,000 for each subsequent violation. The new law, however, provides no enforcement penalty for violation of the law by a governmental entity. The law also gives the NYDFS jurisdiction over non-licensees who might violate the law.

Conclusion

This new law prevents additional insureds, including governmental entities, from requesting additional terms or language be added to a certificate of insurance that are not specifically contained within the policy. Similarly, the law also prohibits entities from requiring (within their contracts) that a certificate be issued containing provisions that violate this section.

Although the new law provides additional protections when certificates are being issued, prudent insurance agents and brokers should not only follow the new law but also continue to follow the best practices that we have recommended over the years regarding how to handle certificates of insurance.

First, be sure to use the most up-to-date ACORD Certificate of Liability Insurance form (Accord 25 (2014/01).) Second, if you deliver a certificate of liability insurance to additional insureds via e-mail or other electronic means, if at all possible, include a copy of the policy with the certificate of insurance. The additional insured will then be on notice of the full terms and conditions of the policy, preventing a “misunderstanding” as to the coverages provided by the policy.

We anticipate that the application of the new law will be a work in progress until businesses, individuals and governmental entities become aware of the applicability of the new law. However, it is our belief that this new law will help curb the number of errors and omissions claims and lawsuits that are made against New York insurance agents and brokers, since certificates still account for a large number of E&O matters that arise each year.

Submitted by:
Stephen C. Cunningham, Esq.
Keidel, Weldon & Cunningham, LLP