The Office of General Counsel issued the following informal opinion on January 9, 2001, representing the position of the New York State Insurance Department.
Re: Cancellation of Automobile Policy for Nonpayment of Billing and Late Fees
Question Presented:
Can an insurer cancel a private passenger automobile policy for nonpayment of billing and late fees?
Conclusion:
Yes. Pursuant to N.Y. Insurance Law §§ 3425(a)(10) (McKinney 2000), which applies to personal insurance and 3426(a)(3) (McKinney 2000) which applies to commercial insurance, such fees constitute "any obligation in connection with the payment of premiums on a policy of insurance". Failure of the insured to fulfill this obligation (pay fees) within the required time period may constitute "nonpayment of premium," one of the grounds for cancellation of an insurance policy. Therefore, an insurer may cancel a policy, pursuant to those statutes, if the insured fails to pay such fees. Note, however, that the insured must be aware of its contractual obligation to pay the fees.
Facts:
An insurance broker stated that on July 7, 2000, it received $262.00 from its insured. Subsequently, the brokers office called the insurer and confirmed that the $262.00 received was the correct amount due. Three (3) days later an $8.00 billing fee was added. One month later, another $8.00 billing fee was assessed, totaling $16.00 in billing fees. When the $16.00 was not received, a late fee of $6.00 was assessed for a total of $22.00 in fees.
The insurer sent a notice of cancellation to the insured with an effective date of October 23, 2000. On October 24, 2000, the insured tried to pay the $22.00 fees. The insurer rejected payment of the fees and refused to reinstate the policy.
Analysis:
N.Y. Insurance Law and the Departments regulations do not specifically address whether an insurer may cancel a private passenger automobile policy for nonpayment of billing and late fees. Nor has the Department promulgated any regulations governing such fees. However, N.Y. Ins. Law §§ 3425(c)(1)(A) and 3425(a)(10) (McKinney 2000) provide guidance. Both sections govern the personal automobile insurance in question.
N.Y. Ins. Law § 3425(c)(1)(A) (McKinney 2000) states in relevant part:
After a covered policy has been in effect for sixty days, or upon the effective date if the policy is a renewal, no notice of cancellation shall be issued unless it is based on one or more of the following:
With respect to automobile insurance policies:
nonpayment of premium
.
N.Y. Ins. Law § 3425(a)(10) (McKinney 2000) states in relevant part:
(10) "Nonpayment of premium" means the failure of the named insured to discharge ANY obligation in connection with the payment of premiums on a policy of insurance or any installment of such premium, whether the premium is payable directly to the insurer or its agent, or indirectly under any premium finance plan or extension of credit. Payment to the insurer, or to an agent or broker authorized to receive such payment, shall be timely, if made within fifteen days after the mailing to the insured of a notice of cancellation for nonpayment of premium. (emphasis added).
Based on the reading of NY Ins. Law § 3425(a)(10), as well as its companion § 3426(a)(3), the fees constitute an "obligation in connection with the payment of premiums on a policy of insurance or any installment of such premium." Therefore, the insurer may cancel the policy if the insured fails to pay such fees.
While the Insurance Law and the Departments regulations do not specifically address this issue, the Departments position is that fees are separate from the premium and are for services rendered in a consumer credit transaction. Such fees are not regulated by this Department or subject to its approval. However, the insurer may not charge any fees unless the insured is aware of its obligation to pay such fees. In addition, all fees should be delineated in the billing statement and the notice of cancellation.
For further information you may contact Attorney D. Monica Marsh at the New York City Office.