New York Insurance Chief Seeks Contract Certainty for Large Policies

New York officials are putting pressure on insurers and brokers to sew up the details of most large commercial insurance policies and deliver finished contracts to customers within 30 days of inception to avoid uncertainty over what’s covered and what’s not.

Superintendent of Insurance Eric Dinallo, whose department was involved in the six-year process to settle insurance disputes surrounding the terrorist attack on the World Trade Center buildings, is giving insurance carriers one year to implement new procedures to assure contract certainty on large commercial policies.

In a new regulatory order (Circular Letter No. 20), Dinallo is calling on insurance carriers and brokers to finalize all terms of such policies within 30 days of inception, with any exceptions or extensions being fully documented.

The policies affected include those for large commercial insureds written on a manuscript basis rather than on standardized forms, which are already subject to regulatory approval. These include policies involving special risk, excess insurance and reinsurance terms and coverages.

Dinallo is not expecting that all such policies will be finalized within 30 days– but almost all.

“Licensees should strive for contract certainty in at least 90 percent of the policies that are not already subject to a more stringent requirement,” Dinallo ordered.

Dinallo noted that failure to finalize contract terms and conditions before coverage becomes effective can hurt all parties to the contracts.

“[A] lack of contract certainty may give rise to situations where insureds do not know what coverage they have actually obtained and may assume that they are covered for certain risks when, by the terms of the final contract, they are not,” he advised. “A lack of contract certainty can also result in insureds having broader coverage than they had identified, needed, or desired. In such situations, insureds and insurers alike bear unintended risks and costs.”

Failure to finalize details is wasteful, according to the insurance chief. “This uncertainty exposes insureds, insurers and producers to increased legal risk and complex litigation, the resolution of which may require significant resources that might be directed better toward the resumption of normal and productive business activity,” Dinallo wrote.

He cited the more than six years of “contentious and costly litigation” over the World Trade Center destruction which came about in part because there was uncertainty about the scope and intent of the insurance coverage that was bound.

He noted that the issue is also being addressed in the United Kingdom, where the Financial Services Authority has given the London market two years to achieve greater contract certainty.

Dinallo vowed that his department would verify whether progress is being made toward contract certainty after 12 months through its examination process and information from carriers and insureds.

Joe Plumeri, chairman and CEO of global insurance broker Willis Group Holdings, who has been an outspoken critic of the industry’s failure to deliver policies in a timely fashion, applauded Dinallo’s initiative to bring contract certainty to the insurance industry in New York.

“Willis has long held the belief that contract certainty is one of the basic principles of service and should be adopted across the industry. There is absolutely no excuse for policies to be delivered months after their inception, an all-too-commonplace practice in this business,” Plumeri said.

Plumeri has been urging the industry to improve its contract delivery procedures for several years. He said Willis itself has taken steps and employs metrics to assure that clients receive policies in a timely manner.

“We’re in the business of keeping promises, and the insurance industry as a whole can do no less. We believe that the industry should police itself, take a principled approach to doing business, and adopt these measures as soon as possible,” said Plumeri.

Dinallo worked at Willis for a period prior to being named insurance chief.