Binding Into a Named-Storm Moratorium
It is Friday at 4:40 p.m. A named storm is forecast to make landfall in 72 hours. The agency's largest personal lines carrier has issued a binding moratorium for four coastal counties effective 5:00 p.m. today. The carrier's rating system still allows quotes, and the agency's comparative rater will still produce a binder number. A client, Ms. Okafor, is closing on a $415,000 coastal home Monday at 10 a.m. Her lender requires a paid homeowner's policy at closing. Her current renters policy cancels at midnight tonight because she is moving out. She has no flood policy, and the home sits in a moderate flood zone. She calls in a panic and says, 'Just bind something tonight, I'll fix it next week.' The producer is at a golf tournament and texts back, 'Go ahead, the system will take it.'
1. Should the CSR bind coverage with the moratorium carrier? Explain.
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No. A moratorium is a carrier instruction that suspends the agency's binding authority for a defined area and period. The fact that the rating system still produces a binder number is an artifact of the software, not authority. Binding during a moratorium is an unauthorized binding: the carrier can decline the risk, the client can be left uninsured at closing, and the agency may be held responsible for the gap.
The producer's text is not authority from the carrier. Only the carrier can lift or grant an exception, and that must be in writing.
Flood is a separate exposure. A homeowners policy excludes flood, and the lender may require flood coverage depending on the property's actual flood zone designation. 'Moderate flood zone' should be verified rather than assumed.
The CSR should not bind and should not tell the client she is 'covered' until coverage is actually placed with a carrier that has authority to accept it.
2. What alternatives and disclosures should the CSR present to the client before the end of the day?
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Alternatives, in order:
- Call the carrier's underwriting or agency relations line to confirm the moratorium boundaries and ask for a written exception. Document the answer.
- Ask whether the current renters policy can be extended 30 days. A short extension is sometimes available even when the carrier will not write the new home.
- Try other appointed carriers with no moratorium. Check each carrier's own moratorium list; do not assume they mirror the first carrier's.
- Consider a surplus lines or wind-only policy if admitted markets are closed, with written disclosure that it may be nonadmitted, narrower, or more expensive.
- Ask the lender whether a binder plus proof of pending placement will satisfy closing. Many lenders will accept an ACORD 28 or 25 with a paid receipt, but the lender's requirement must be confirmed in writing.
Disclose clearly: 'I cannot bind coverage with Carrier A tonight because of a storm moratorium. Here is what I can and cannot do.' Do not promise coverage that does not exist, and do not collect premium for coverage that has not been bound.
3. What documentation and communications should follow, regardless of which option the client chooses?
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Documentation:
- Log the 4:40 p.m. call and the producer's text, with times and content.
- Save the moratorium notice and the rater screenshot showing the binder number, and note in the file that the binder number does not equal authority.
- Send the client a written summary of the options presented, the recommendation, and the consequences of proceeding without coverage, including that the lender may delay closing.
- Confirm any extension or new policy in writing, with effective dates, premium, and carrier.
- If the client elects to close uninsured, obtain a written acknowledgment. It is his decision, but the agency's advice must be documented.
- Notify the principal, and if an unauthorized bind was attempted, notify the agency E&O carrier.
Do not issue a certificate for coverage that was not validly bound. A certificate showing a policy that the carrier later rescinds is worse than no certificate, because it creates reliance by the lender and the client on coverage the agency could not deliver.