BILL NUMBER: S6569

SPONSOR: BAILEY
 
TITLE OF BILL:

An act to amend the insurance law, in relation to certificates of insur-
ance

 
PURPOSE OR GENERAL IDEA OF BILL:  The purpose of this bill is to
require certificates of insurance (COIs) be issued only by insurance
companies and that the representations contained therein are binding
upon the issuing insurer.

 
SUMMARY OF PROVISIONS:

Section 1 names the bill the Certificate of Insurance Reliability Act
("CIRA").

Section 2 adds a new section 501-A to the insurance law requiring that
every certificate of insurance providing information as to coverage for
activities conducted within the state shall be issued by an insurer, and
such certificate shall be binding on the insurer that issues the certif-
              

icate of insurance.

Section 3 amends paragraph a of section 502 of the insurance law to
eliminate language regarding industry-wide standard forms that would not
be necessary if insurers themselves (and, not brokers) issued COIs.

 
JUSTIFICATION:

A Certificate of Insurance ("COI") is a document utilized in a variety
of situations throughout the state of New York as a vehicle to ensure
that insurance protection is in place. They are commonly required on
construction contracts and by property managers of both commercial and
residential real estate for any entity that intends to do work in the
building, or even just to enter the building to perform such trivial
services as the delivery of packages.

It is common that a person seeking insurance will call an insurance
broker to place an insurance policy either to obtain a construction
contract or to enter a property to provide a wide range of services.
Most brokers are "independent" in that they represent many insurance
companies. Accordingly, it is the brokers who typically fill out a COI
that provides the information as to the policies that they have obtained
for their clients, the limits of those policies, and the name of the
relevant insurance company.

Critically, a COI obtained and issued by a broker is provided for infor-
mational purposes only and confers no rights upon the certificate hold-
er. However, sometimes after a COI has been issued, the relevant insur-
ance company has second thoughts and declines to ever issue a policy.
And sometimes the insured permits the insurance policy to lapse by not
paying the required premiums. This means that the COI that is being
relied upon by a contractor or property owner or otherwise is falsely
assuring that certain coverage exists.

When this happens, the insurance company takes the position that they
are not bound by the false contents and misrepresentations of the COI
since they did not issue it. And courts will not hold the insurer liable
for any such misrepresentations. This leaves contractors, property
owners and victims without coverage for accidents, injuries or damage
that was supposed to be and purported on a COI to be available.

CIRA would require that certificates of insurance be issued by insurance
companies and that the representations contained therein are binding
upon the issuing insurer. Insurers are in the best position to provide
correct and updated information on a COI as to the policies that they
issue and maintain. CIRA will effectively eliminate false representa-
tions on COIs representing the existence of policies that have lapsed,
that were never issued, or that were altered after-the-fact.

Compliance with CIRA will be easy and inexpensive for insurers.  Insur-
ance policies are generally issued electronically and COIs can be issued
quickly by the insurance company that has agreed to cover the risk.
Brokers, meanwhile, will be removed from the cross hairs of being sued
for misinformation on the COIs since such forms will be issued and
updated by insurers, or otherwise bind such insurers.

 
PRIOR LEGISLATIVE HISTORY:

New bill.

 
FISCAL IMPLICATIONS FOR STATE AND LOCAL GOVERNMENTS:

None.

 
EFFECTIVE DATE:
This bill shall be effective ninety days after enactment.