Insurance binders are typically temporary insurance that is put into place while awaiting the actual issuance of an insurance policy. Insurance binders can become very messy legally from the carrier standpoint, the agent standpoint and/or the clients standpoint. Insurance binders are usually written documents but they can also take the form of verbal commitments. This article today is going to focus on some of the pitfalls of insurance binders from a client’s viewpoint.
First of all there are many policies whereby a binder is not allowed verbally or in writing. Some of the typical policies that do not allow binders are Worker’s Compensation policies, professional liability policies, medical insurance, and life insurance policies. In almost all cases the retail insurance broker is not permitted to issue an oral or written binder to the client on these types of policies. If you as the client have received an oral or written binder you need to make sure that it is backed up in writing from the carrier.
Another red flag for the client to be aware of is that typically legitimate binders from the retail broker normally cannot be for limits greater than $1 million. Receiving a binder for $10 million in general liability limits from your retail broker is in almost all cases not a valid binder without carrier approval.
Finally, most states do not allow brokers to do binders for longer than 90 days. So if you receive a binder that is longer than 90 days from a retail broker, unless it is a binder directly from the carrier it is probably not a valid binder.
Another idea that should be considered is that even if you have a valid oral insurance binder on a policy that is permissible you still should insist on the insurance binder being a formal document in writing. That will help you as the client in many ways.
• One way it will help you is that you will immediately be able to see if there is any errors or omissions that have been made on your coverage request.
• If everything is in order, then you will have the peace of mind knowing that you have in writing what you have asked for.
• Also, and probably the most important is if you at experience a claim during this temporary period, you will be on much firmer legal ground by having a written document so that you will be able to hold the agent or carrier for the commitments that have been made to you.
To recap the management tip of the day, as a client if you receive a binder for insurance orally or verbally on one of the policies we listed above, or the limits are greater than $1 million, or the length of the binder is greater than 90 days, then you need to investigate further to make sure you have a valid binder. Taking the time during the initial insurance binding process can help in providing the upfront protection that you are seeking so that the policy that is being issued is issued according to your specifications.