You’ve told your Broker/Agent to accept/bind coverage on your behalf for a new Directors & Officers or Professional Liability policy and in turn you received a “Binder.” According to the California Department of Insurance, a binder
“is a temporary or preliminary agreement which provides coverage until a policy
can be written or delivered.”
So, at this point you might very well think that coverage is in place – but it may not be.
There are three potential pitfalls of which insureds need to be aware.
Insurance quotes often come with “subjectivities” upon which coverage is conditional on “receipt and acceptance” of these items. Binders sometimes contain subjectivities as well.
- If these items are not received within the allotted timeframe, coverage could be in jeopardy.
- “Acceptance” is not usually defined, leaving it up to the insured or Broker/Agent to obtain confirmation – another potential loop hole.
- Lastly, it is important to make sure that the binder, which is typically good for 30-60 days, does not expire prior to issuance of the policy which can void coverage altogether.
Case law presents a multitude of variables by which insurers have alleged no coverage for claims reported during the binder period. For this reason, insureds need to be aware of the pitfalls and understand that claims may be in jeopardy of declination – particularly if subjectivities or conditions have not been met or if the binder has expired prior to policy issuance.
Best Defense:
- Get quotes well in advance – with time enough to complete and submit all “subjectivities” prior to the policy effective date or at least within the time required
- Once all subjectivities have been provided, press for issuance of the policy
- You can ask your Broker/Agent to state that Binders will not be accepted on the Acord application when they request quotes – but this may not be honored
- Do not let the binder expire before the policy is issued – extensions are usually available if necessary upon request
Binders are commonplace; the point here is that insureds need to be alert as to the terms of the Binder and when a policy is issued.
