OGC Opinion No. 06-12-08

The Office of General Counsel issued the following opinion on December 14, 2006, representing the position of the New York State Insurance Department

Nonpayment cancellation-installment billings N.Y. Ins. Law § 3425 (McKinney Supp. 2006)

Question Presented:

May a notice of cancellation bill for two separate monthly installment premium amounts, even though the second amount was not yet due at the time the notice of cancellation was mailed?

Conclusion:

No. A notice of cancellation that includes a premium amount not yet due is premature to be combined within the amount that may cause the policy to be cancelled. Any amount not yet due does not provide legal grounds to cancel for nonpayment of premium and violates N.Y. Ins. Law § 3425(c)(1)(A) (McKinney Supp. 2006).

Facts:

An insured paying premium on a monthly installment plan on a personal lines insurance policy under N.Y. Ins. Law § 3425 (McKinney Supp. 2006) failed to pay a $150 premium amount due so a notice of cancellation was mailed on June 8 to become effective June 24. A second premium amount of $150, which had been billed before June 8, was not yet paid, and was due no later than June 15. The inquiry concerns whether the cancellation notice mailed on June 8 may require that the insured pay the two monthly installment amounts of $150 each by June 24 or the policy would be cancelled effective that date.

Analysis:

N.Y. Ins. Law § 3425(c) (McKinney Supp. 2006), states in relevant part as follows:

"The general rule involving cancellation is that notice provisions and statutes must be literally complied with. . . "(Palotta v. Physicians' Reciprocal, 137 Misc. 2d 223 (Sup. Ct. Nassau County 1987)) and cancellation notice requirements are strictly construed against the insurer. Zeman v. Zack Agency, Inc. 75 A.D. 2d 261 (2d Dept. 1980).

When the notice of cancellation for nonpayment of $300 as premium was sent on June 8, requiring payment by June 24 to avoid cancellation, only $150 was in arrears at the time of mailing and could form the basis for the notice of cancellation. The notice of cancellation failed to correctly inform the insured of the amount that was due on June 8 and constituted a violation of the said statute. Although another monthly installment amount had been billed prior to the mailing of the cancellation notice, that amount was not due until June 15. Therefore, the insurer may not issue a notice of cancellation on June 8 as to the second installment amount which was not due until June 15. The insurer as of June 8 was entitled only to $150, not $300, so it was limited to the $150 amount in that June 8 notice to be paid by June 24. If the insurer wished to issue a second notice of cancellation regarding the second monthly installment, it had to wait until after June 15 to send such separate notice.

For further information you may contact Associate Attorney Jeffrey A. Stonehill at the New York City Office.