OGC Opinion No. 06-04-03

The Office of General Counsel issued the following opinion on April 4, 2006 representing the position of the New York State Insurance Department.

RE: Motor vehicle enforcement fee and grounds for cancellation

Question Presented

May a motor vehicle insurance policy be cancelled for nonpayment of the Motor Vehicle Law Enforcement Fee?

Conclusion

Yes, a motor vehicle insurance policy may be cancelled for nonpayment of the Motor Vehicle Law Enforcement Fee.

Facts

No specific facts are alleged; this is a general inquiry regarding the cancellation provisions of the Insurance Law for motor vehicle insurance policies. The inquirer notes that the Department's position in an opinion dated July 21, 2000 is inconsistent with the position stated in an attachment to Circular Letter 10 (2003) Supplement 1, dated August 7, 2003. The opinion stated that a policy could be cancelled for the nonpayment of the motor vehicle fee whereas the Circular Letter stated that it could not.

Analysis

N.Y. Ins. Law § 9110 (McKinney 2000 & Supp. 2006)¹ requires every insurer authorized to do business in this state to collect, in addition to the applicable premium charge, a motor vehicle law enforcement fee, charged to each holder of a policy issued in the state or for delivery in this state for motor vehicle liability insurance coverage.

A motor vehicle liability insurance policy issued by an authorized insurer will be subject to one of three applicable cancellation requirements: N.Y. Ins. Law § 3425 (McKinney 2000 & Supp. 2006), with respect to voluntarily issued and renewed non-commercial policies; N.Y. Ins. Law § 3426 (McKinney 2000 & Supp. 2006), with respect to voluntarily issued and renewed commercial policies, or the rules of the New York Automobile Insurance Plan (the "Plan"), promulgated pursuant to Article 53 of the Insurance Law for assigned risk policies.

Section 3425(c)(1)(A) and § 3426(c)(1)(A) permit an insurer to issue a notice of cancellation with respect to motor vehicle policies for "nonpayment of premium". Both § 3425(a)(10) and § 3426(a)(3) define "nonpayment of premium to mean, in material part, "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..."

The insurer must include the enforcement fee, if applicable, in the minimum amount due set forth in the premium notice or subsequent notice of cancellation for nonpayment. Failure to pay such amount would be a failure by the insured to discharge an obligation in connection with the payment of premium, within the meaning of both § 3425 and § 3426. Accordingly, an insurer, if notice is effected in accordance with the appropriate section, may properly cancel a policy for nonpayment of the motor vehicle fee.

Section 18.2(3) of the Plan permits an insurer to cancel "if the insured...has failed to pay any premiums due under the policy..." The Plan rules treat the motor vehicle law enforcement fee, if applicable, as an addition to the premium that is required to be collected with the premium. Although the Plan rules do not contain a definition of nonpayment of premium similar to that contained in §§ 3425 and 3426, the Department construes the Plan rules so as to permit the insurer to cancel the policy for failure to pay the fee with the premium. For one thing, money is fungible so that, if an insured remitted five dollars less than the total billed by the insurer, an insurer could as easily construe the payment as being five dollars short on the premium as it could that the insured failed to pay the fee. Moreover, failure to collect the premium would put the insurer in violation of § 9110 and absent the ability to threaten cancellation for nonpayment, the insurer would have no viable mechanism to collect the five dollar fee from a delinquent insured. Such a result would undermine the ability of the State to receive the appropriate tax payments and reward insureds for avoiding paying their taxes and, as such, can not be countenanced.

Accordingly, an insurer may cancel a policy if the insured does not pay the Motor Vehicle Law Enforcement Fee and, to the extent that the attachment to Supplement 1 to Circular Letter 10 (2003) states otherwise, it is to be considered withdrawn.

For further information one may contact Principal Attorney Paul A. Zuckerman at the New York City Office.

¹  The Insurance Law contains two sections 9110.  The motor vehicle law enforcement fee is mandated by the first-such enacted section.