Question from an IIABNY member: What does New York State law say about how long a binder should be effective? I was hoping to find something that stated the period of temporary insurance could be 60 days as I have had two places recently want me to issue binders for one year!
Answer: The New York Insurance Law does not place a time limit on binders. I found a 1991 Insurance Department advisory legal opinion that states as follows:
January 23, 1991
This responds to your letter of December 18, 1990 inquiring whether any law in New York State says that a binder is in force only for thirty days and whether binder length is determined by information contained in the binder itself.
I restrict my research to the New York State Insurance Law. Chapter 445 of the laws of New York State, signed on July 10, 1990 (effective the same date) among other things amended the Insurance Law by adding a new subsection 3404(h). The new subsection defines "binder," as used in Section 3404, as requiring certain information and as obligating the insurance company to provide insurance coverage. The time length of the binder is not mentioned, nor does any other provision of the Insurance Law address the time length of binders.
Since the Department considers the binder to have the same force and effect as the policy itself, certain restrictions may apply as to cancellation and termination of the binder. For examples of such restrictions, please see Insurance Law Section 3425 concerning personal lines insurance and Section 3426 concerning commercial lines insurance.
Sect. 3404(h) states:
As used in this section, "binder" means a written document (1) which includes the name and address of the insured and any additional named insureds, mortgagees, or lienholders; a description of the property insured; a description of the nature and amount of coverage which shall be deemed to include the terms of the standard fire insurance policy except as conspicuously noted on the binder; the identity of the insurer and of the authorized representative executing the binder; the effective date of coverage; the binder number or the policy number where applicable to a policy extension, and (2) which temporarily obligates the insurer to provide that insurance coverage pending issuance of the insurance policy. The cancellation of such a binder shall be governed at the minimum by the provisions of the standard fire insurance policy and the provisions of this chapter applicable thereto. No exempt organization, as defined in section five hundred ninety of the banking law, or licensed mortgage banker which originates mortgage loans shall, at the time of title closing for a loan secured by a one to four family residential real property, refuse to accept a binder, issued by an insurer, or a duly authorized representative of an insurer, licensed to do business in this state, as evidence that hazard insurance has been procured for the mortgaged premises. Nothing herein is intended to prohibit the mortgage banker or exempt organization from requiring the borrower to also furnish a receipt indicating that the annual or installment premium on such insurance policy has been paid.
This definition is silent on the length of time a binder can be in effect. Theoretically, a company could issue a one-year binder, but I think that’s just asking for a claims dispute. Eventually, the company needs to issue a policy.