In just 18 days, New York’s certificates of insurance law will take effect. The New York State Department of Financial Services has posted an initial list of certificate forms it has approved. We are getting closer to a huge relief for New York insurance producers.
Judging from the emails and questions I’ve been getting, though, there seems to be a fair amount of misunderstanding out there about what this law says and does. So, let’s take a few minutes to dispel some myths.
Myth #1: The law puts new restrictions on what insurance producers can do with certificates.
The truth: Until now, producers have been guided by a pair of circulars issued by the DFS back in the 1990’s. Here’s the major point:
Licensed producers are advised that they may not add terms or clauses to a certificate of insurance which alter, expand or otherwise modify the terms of the actual policy unless authorized by the insurer which has filed an appropriate endorsement with the Superintendent of Insurance and obtained prior approval, if required.
Now, here is what the new New York Insurance Law Section 502 says:
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. A certificate of insurance shall further not confer to any person any rights beyond those expressly provided by the policy of insurance referenced therein.
There’s not a whole lot of difference there. The second sentence is pretty close to what the ACORD 25 Certificate of Liability Insurance says in its header. The fact is that this law does not place any restrictions on producers that weren’t there before.
Myth #2: Certificates that are not approved by the DFS are illegal.
The truth: Nuh-uh. Saying that a particular act or document is illegal implies that someone can be punished for using it. There is nothing – NO-THING – in the law that makes it a crime to ask for or issue a certificate form that the DFS has not approved.
Rather, an entity that wants its own unapproved form has no leverage over the insured. Section 502 also says this:
In this state:
(a) With respect to a certificate of insurance evidencing that a policy provides personal injury liability insurance or property damage liability insurance, as defined in paragraphs thirteen and fourteen of subsection (a) of section one thousand one hundred thirteen of this chapter, no person or governmental entity shall willfully require, as a condition of awarding a contract for work, or if a contract has already been awarded as a condition for work to commence or continue under the contract, or if the contract has been performed or partially performed as a condition for payment to be made under the contract, the issuance of a certificate of insurance unless the certificate is:
(1) a form promulgated by the insurer issuing the policy referenced in the certificate of insurance; or
(2) a standard certificate of insurance form issued by an industry standard setting organization and approved for use by the superintendent or any other form approved for use by the superintendent.
All of the prohibitions stated in this provision apply to those who require certificates of insurance, not to the producers who issue them. Also, the language does not prohibit asking for a non-approved form. It says that the requestor cannot retaliate against the insured for failing to produce it. This law gives you (the producer) the ability to tell a certificate requestor to bug off, and you don’t have to worry about the requestor retaliating against your client. That’s the really valuable change it makes. If someone requests a non-approved certificate, and you say no, and that person kicks your insured off the job site, then he is subject to a fine.
Myth #3: The agent can be fined for issuing a non-approved certificate form.
The truth: Nuh-uh again. As the language quoted above shows, nothing prohibits an agent from issuing a non-approved form. From a practical standpoint, I can’t imagine why a producer would want to issue such a certificate (the whole point of the law was to get that off producers’ backs), but it’s just incorrect for producers to think they’ll get fined if they issue a cert that’s not on the list. ACORD always urges issuers to use the most current editions of their forms because they make changes to reflect the laws in all 50 states, and they don’t support outdated forms. Therefore, both the DFS and ACORD would tell you that your best bet is to use the editions on the list.
Essentially, producers have the legal ability to issue any certificate form if 1) it doesn’t change the insurance coverage in any way; and 2) the insurer has authorized its use. This doesn’t mean they have to issue it (most of the time, they won’t want to.) It means that they can legally do it.
Myth #4: Certificate holders can no longer request wording on a certificate that is not on the policy.
The truth: They can ask, but they can’t require. Here’s Section 502 again:
(b) No person or governmental entity shall wilfully require the inclusion of terms, conditions or language of any kind, including warranties or guarantees, that the insurance policy provides coverage or otherwise sets forth terms and conditions in a certificate of insurance, if the insurance policy referenced by such certificate of insurance does not expressly include such terms, conditions, or language. This subsection shall not prohibit any person or governmental entity from including minimum insurance requirements, coverage limits, terms, or other conditions in the solicitation of bids as part of a competitive process, and it shall not prohibit any person or governmental entity from requesting, or an insurer or insurance producer from responding to such a request with, clarification regarding the terms of the policy, or endorsement thereto.
They’re free to ask for it, but once they’re told it’s not possible, they can’t kick the insured off the job site solely because of the certificate. If the insured signed a contract in which he promised to carry certain coverage and he doesn’t have it, he could be in breach of contract, but that’s an issue separate from the certificate. Any project owner can still say, “You have to name me as an additional insured.” They cannot keep someone off a job site simply because a certificate does not say, “The People of the State of New York and all of their European, Asian, African and interplanetary ancestors are additional insureds.”
The law does not place new restrictions on producers. Rather, it gives them a new ability to say no to unreasonable requests. There is now recourse against those who won’t take no for an answer. And that is what makes this law valuable to producers.