Financial responsibility laws are nothing new. Most states have laws that require drivers to maintain certain levels and types of insurance. Other states require insurers to specifically offer their insureds certain types of coverage. The same goes for personal injury protection or no-fault coverage. Carriers are well aware of these types of laws because they are statutorily enacted.
Less familiar to practitioners and insurers are regulatory requirements that govern the issuance of certain types of business licenses. These types of regulations are generally not a problem if the licensing entity is reviewing an applicant’s policy before a license is issued to make sure the insurance procured is in conformity with the financial responsibility regulation.
However, many of the regulatory or quasi-governmental entities issue licenses based only on a certificate of insurance that may or may not accurately reflect the coverage provided by a policy, depending on who issued the certificate.
So why is this a problem? Plaintiffs’ attorneys are using these types of regulations as a basis to argue that coverage was either non-compliant or cancellation ineffective to set up contractual and extra-contractual claims against carriers. The lack of authority of what effect, if any, these regulations have on a non-compliant policy leads to inconsistent and unpredictable results.