The Office of General Counsel issued the following informal opinion on November 2, 2001, representing the position of the New York State Insurance Department.
Re: Binder as Evidence of Coverage
Are insurance binders legally accepted as evidence of insurance coverage in New York State where a commercial property owner is seeking a loan and the lender requires an insurance certificate evidencing coverage?
Insurance binders are the equivalent of temporary insurance until a formal policy is issued. Once a formal policy is issued, the binder is no longer in effect, and therefore it is the lenders decision of whether or not to accept a binder as evidence of insurance.
A New York State commercial property owner is seeking a loan and the lender requires an insurance certificate evidencing coverage. The facts do not state the type of insurance coverage required. However, the insurance agent has only an insurance binder. It is not clear from the facts given whether a formal policy was issued.
The New York State Court of Appeals, in Springer v. Allstate Life Insurance Co. of N.Y., 94 N.Y.2d 645, 649 (2000), summarized the law regarding insurance binders and coverage in New York, and stated the following:
It has long been settled in this State that an insurance binder is a temporary or interim policy until a formal policy is issued (citations omitted). A binder provides interim insurance, usually effective as of the date of application, which terminates when a policy is either issued or refused (citations omitted). A binder does not constitute part of an insurance policy, nor does it create any rights for the insured other than during its effective period (citation omitted). Thus, a binder is limited in time until an assessment of risk is completed by the carrier.
Therefore, a binder is only in effect until a policy is written. Additionally, for a binder to be enforceable, N.Y. Ins. Law § 3404(h) (McKinney 2000) requires that a binder for a fire insurance policy must be in the form of a written document which includes specified items including the effective date of coverage and the term or duration of coverage. Section 3404(h) temporarily obligates the insurer to provide coverage pending issuance of the insurance policy.
Regarding the cancellation of insurance, N.Y. Ins. Law § 3426(b) (McKinney 2000) requires specific procedures for commercial line policies. Section 3426(b) states that:
During the first sixty days a covered policy is initially in effect . . . no cancellation shall become effective until twenty days after written notice is mailed or delivered to the first-named insured at the mailing address shown in the policy and to such insureds authorized agent or broker.
According to the New York State Supreme Court in Gatti v. Alliance Group of Western N.Y., et al., 2000 WL 33593141, at *2 (N.Y. Sup. Ct. Nov. 3, 2000), section 3426(b) "does not differentiate between an interim policy of insurance issued through a binder by an agent, and a formal policy issued by the carrier after assessing the risks involved in the application." If a binder is issued, unless the insurer cancels the coverage in accordance with section 3426, the insured will continue to have coverage and be insured.
If the binder was not cancelled and the policy was issued, it is the lenders decision whether or not to accept a binder as proper evidence of insurance. The Insurance Law does not require a lender to accept a binder as such evidence.
For further information, you may contact Senior Attorney Meredith S. Kaufer at the New York City Office.