The Department reminds insurers and agents that §541.061 of the Insurance Code prohibits misrepresentation of insurance policies by failing to state a necessary material fact, or by making a statement in a manner that would mislead a reasonably prudent person to a false conclusion of a material fact. This issue can arise in commercial property transactions where forms indicating "evidence of insurance" are utilized which state that it is issued as "a matter of information only" or similar language without the contemporaneous issuance of a binding document or policy of insurance. Insurers or agents should not use any form or make attestations that do not accurately reflect what actually exists for the benefit of the policyholder or beneficiary, whether the form or attestation references a binder, policy, or action to be taken by the insurer with regard to issuing a binder or policy. Additionally, an insurer or its agent should not issue or sign forms that create rights and obligations outside the insurance contract.
Further, Section 549.055 of the Insurance Code provides in part, "(a) A lender that requires a borrower to secure insurance coverage before the lender will provide a residential mortgage or commercial real estate loan must accept an insurance binder as evidence of the required insurance and may not require the borrower to provide an original insurance policy instead of a binder if:
(3) the binder will be replaced by an original insurance policy for the required coverage on or before the 30 th day after the date the binder is issued."
The Department suggests that there be open and full communication with all parties associated with a commercial property transaction regarding the requirements and obligations of each party with respect to the law and that the parties plan accordingly. Further, any binder reflecting an insurance agreement required and provided pursuant to Section 549.055(a) of the Insurance Code must be followed by delivery of a policy on or before the 30 th day after the binder is issued.
Questions regarding this bulletin should be directed to David Durden, Associate Commissioner, Public Affairs at firstname.lastname@example.org or 512.463.6410.
Commissioner of Insurance