Question from an IIABNY member: Can you clear something up for our agency? If a customer is purchasing a home and needs a binder for closing, do we issue the binder with the closing date as the effective date? Or do we date it effective the date we send it? Would you ever back date it without a closing date?
Answer: I look at it this way. A binder is a temporary substitute for the policy (This is from a 1900 New York court decision: “The object of a binder is to provide temporary insurance pending an inquiry by the company as to the character of the risk, or if that be known, during any delay in issuing the policy.") It’s legally enforceable, like the policy, so if the insured submits a claim under the binder, the insurer is obligated to honor the claim. However, insurance is not enforceable unless the insured has an insurable interest in the property (N.Y. Insurance Law Sect. 3401 states this specifically.) Therefore, a binder that is effective before the closing date is unenforceable until the closing actually occurs. It makes more sense to make the binder effective on the closing date. If the attorneys or the lender postpone the closing, all the insured need do is comply with the cancellation condition in the HO policy (“You may cancel this policy at any time by returning it to us or by letting us know in writing of the date cancellation is to take effect.”) A simple note stating that the insured wishes to cancel the binder flat because the closing date changed should be sufficient.
I expect that an insurer would not be happy about its agent issuing backdated binders. It’s hard to imagine needing to backdate one anyway. When we bought our houses, the lawyers stopped just short of specifying the font on the binders, let alone letting us close without one.
When The Agent or Company get the premium commitment.
Posted by: Dawn Smith | November 10, 2009 at 01:58 PM