The Office of General Counsel issued the following opinion on November 3, 2005, representing the position of the New York State Insurance Department.
RE: Authorized Insurer Using Conditional Renewal Notice to Place Insured with Affiliated Unauthorized Insurer
Question Presented:
With regard to a covered policy subject to N.Y. Ins. Law § 3426, may a New York authorized insurer condition the policy's renewal upon, inter alia, the placement of the policy with an affiliated unauthorized insurer?
Conclusion:
No. The authorized insurer may not condition its renewal upon the policy's placement with the unauthorized insurer because the authorized insurer would violate N.Y. Ins. Law § 1102(a) and the unauthorized insurer would violate N.Y. Ins. Law § 2117(a). Accordingly, the conditional notice was invalid. Please see the analysis below.
Facts
As a representative of Professional Insurance Agents (PIA), the inquirer has requested an opinion from the Office of General Counsel on behalf of a PIA member.
An insurance company group ("Group") includes both New York authorized insurers and unauthorized insurers that do business in New York on an excess line basis only. One of the Group's authorized insurers (Insurer A) issued a commercial lines insurance policy subject to the provisions of N.Y. Ins. Law § 3426. At the end of the required policy period, Insurer A sent the insured a conditional renewal notice. The notice conditioned the policy's renewal upon a number of conditions, including the placement of the policy in one of the Group's unauthorized insurers (Insurer B). Changes to the policy's coverage included mold, and war and terrorism exclusions.
Analysis:
N.Y. Ins. Law § 3426(a)(4) (McKinney Supp. 2005) provides the definition of "renewal" for covered policies subject to N.Y. Ins. Law § 3426:
(4) "Renewal" or "to renew" means the issuance or offer to issue by an insurer of a policy superseding a policy previously issued and delivered by the same insurer, or another insurer under common control, or the issuance or delivery of a certificate or notice extending the term of a policy beyond its policy period or term; provided, however, that any policy with a policy period or term of less than one year shall, for the purpose of this section, be considered as if written for a policy period or term of one year, and any policy with no fixed expiration date shall, for the purpose of this section, be considered as if written for successive policy periods or terms of one year.
N.Y. Ins. Law § 3426(e)(1)(B) (McKinney Supp. 2005) governs the conditional renewal of covered policies under N.Y. Ins. Law § 3426 (McKinney Supp. 2005) and provides, in pertinent part:
(e)(1) A covered policy shall remain in full force and effect pursuant to the same terms, conditions and rates unless written notice is mailed or delivered by the insurer to the first-named insured, at the address shown on the policy, and to such insured's authorized agent or broker, indicating the insurer's intention:
* * *
(B) to condition its renewal upon change of limits, change in type of coverage, reduction of coverage
Accordingly, pursuant to § 3426(a)(4), the issuance of or offer to issue a policy that supersedes a policy previously issued by a different insurer under common control (whether authorized or not) constitutes a renewal; but because exclusions were being added to the policy, Insurer A issued a conditional renewal notice.
However, N.Y. Ins. Law § 2117(a) (McKinney Supp. 2005) provides a general prohibition against acting for or aiding unlicensed or unauthorized insurers:
(a) No person, firm, association or corporation shall in this state act as agent for any insurer or health maintenance organization which is not licensed or authorized to do an insurance or health maintenance organization business in this state, in the doing of any insurance or health maintenance organization business in this state or in soliciting, negotiating or effectuating any insurance, health maintenance organization or annuity contract or shall in this state act as insurance broker in soliciting, negotiating or in any way effectuating any insurance, health maintenance organization or annuity contract of, or in placing risks with, any such insurer or health maintenance organization, or shall in this state in any way or manner aid any such insurer or health maintenance organization in effecting any insurance, health maintenance organization or annuity contract.
N.Y. Ins. Law § 2117 provides certain exceptions to § 2117(a)'s prohibition, but the exceptions are inapplicable under the presented facts.
N.Y. Ins Law § 1102(a) (McKinney Supp. 2005) provides, in pertinent part, that: "[n]o person, firm, association, corporation or joint-stock company shall do an insurance business in this state unless authorized by a license in force pursuant to the provisions of this chapter, or exempted by the provisions of this chapter from such requirement." N.Y. Ins. Law § 1101(b)(1)(A) (McKinney Supp. 2005) defines "doing an insurance business" as:
(A) making, or proposing to make, as insurer, any insurance contract, including either issuance or delivery of a policy or contract of insurance to a resident of this state or to any firm, association, or corporation authorized to do business herein, or solicitation of applications for any such policies or contracts
Under the presented facts, the two insurers agreed that Insurer B, the unauthorized insurer, would write the renewal coverage upon the expiration of the policy issued by Insurer A. Consequently, by conditioning the policy's renewal upon the policy's placement with Insurer B, Insurer A is acting for and aiding an unauthorized insurer in violation of § 2117(a) and Insurer B, by proposing to issue the renewal policy, is doing an insurance business in violation of § 1102(a).
Although Insurer B may be eligible to write the policy on an excess line basis, a licensed excess line broker was not utilized. Moreover, even if a broker had been employed, the method used by the two insurers to move the coverage to the unauthorized insurer is not permissible under New Yorks excess line laws. Insurer A may not condition the policy's renewal upon the placement with an unauthorized insurer because such very act violates § 2117. Only a licensed excess line broker may procure the coverage in question from an unauthorized insurer, and only after the broker has complied with the excess line laws, including having to make a diligent effort to canvass the authorized market for insurance before turning to the unauthorized insurer. Thus, it would be impossible, under any circumstances, for an excess line broker to comply with § 2118 when a New York authorized insurer conditions the renewal upon the policy's placement with an unauthorized insurer, be it an affiliate or not.
The condition of the policy's placement with an unauthorized insurer renders Insurer A's conditional renewal notice invalid. Consequently, Insurer A must renew the insured's policy with the same terms, conditions and rates for another policy period in accordance with § 3426(e)(1).
It appears from the inquiry that it may be Insurer A's practice to condition a policy's renewal upon its placement with an unauthorized insurer. Please advise the PIA member that, as a licensee of the Department, all specific information regarding Insurer A and Insurer B should be provided immediately to the Department for the purpose of initiating an investigation into their renewal practices.
For further information please contact Principal Attorney Paul A. Zuckerman at the New York City Office.