OGC Opinion No. 08-04-36
The Office of General Counsel issued the following opinion on April 29, 2008, representing the position of the New York State Insurance Department.
RE: Applicability of the “two percent rule” to commercial lines insurance
Questions Presented:
1. Is the “two percent rule” set forth in N.Y. Ins. Law § 3425(f)(1) (McKinney 2006), which limits to two percent per calendar year the number of personal lines automobile insurance policies that an insurer may non-renew or conditionally renew based upon a reduction or elimination of coverage, also applicable to commercial automobile insurance policies governed by Insurance Law § 3426?
2. If an insurer writes commercial policies insuring private passenger automobiles that are also used for business purposes, are such policies subject to the two percent rule?
Conclusions:
1. No. Insurance Law § 3425(f)(1) specifically applies to automobile insurance covering motor vehicles predominantly used for non-business purposes, where a natural person is the named insured. Insurance Law § 3426, which governs commercial automobile policies, nowhere limits the number of policies that an insurer may non-renew in a given year.
2. No. Private passenger automobiles used predominantly for commercial purposes and written on commercial policies are governed by Insurance Law § 3426, and are not subject to the two percent rule prescribed in Insurance Law § 3425(f)(1). The applicability of the statutes depends on the principal use of the vehicle, not the classification of the motor vehicle.
Facts:
The inquirer is analyzing the market to determine whether the inquirer should begin offering commercial automobile insurance in New York State. The inquirer acknowledges that pursuant to Insurance Law § 3425, an insurer writing automobile insurance policies may not issue notices of non-renewal or notices to condition renewal upon reduction of limits or elimination of any coverage in excess of two percent of the total number of policies written in a calendar year. However, the inquirer asks whether this limitation applies to insurers writing commercial automobile policies.
The inquirer also states that some “personal vehicles” are insured under commercial policies based on business use. The inquirer asks whether these “personal vehicles” are subject to the two percent rule, even if they are otherwise insured under commercial policies.
Analysis:
Insurance Law § 3425 is relevant to the inquiry. That statute governs the cancellation and renewal of certain property/casualty insurance policies. Insurance Law § 3425(a)(1) defines a “covered policy” as follows:
“Covered policy” means a contract of insurance, referred to in this section as “automobile insurance”, issued or issued for delivery in this state, on a risk located or resident in this state, insuring against losses or liabilities arising out of the ownership, operation, or use of a motor vehicle, predominantly used for non-business purposes, when a natural person is the named insured under the policy of automobile insurance. (Emphasis added.)
Insurance Law § 3425(f)(1), which addresses the non-renewal of automobile polices, reads in relevant part as follows:
With respect to automobile insurance policies, the total number (rounded to the nearest whole number) of notices of intention not to renew a covered policy, and of notices of intention to condition renewal upon reduction of limits or elimination of any coverages, which an insurer may issue shall be limited for each calendar year to two percent of the total number of covered policies of the insurer in force at last year-end in each such insurer’s rating territory in use in this state which have completed their required policy period under this section. However, the insurer may non-renew or conditionally renew one policy in any such insurer’s rating territory in use in this state, if the applicable percentage limitation results in less than one policy. . . .
The non-renewal limitation in Insurance Law § 3425 clearly applies only to an automobile insurance policy issued on a motor vehicle that is predominantly used for non-business purposes where the named insured is a natural person. See also Circular Letter No. 12 (2003). By contrast, Insurance Law § 3426, which governs most commercial lines insurance (including automobile insurance), sets forth no similar limitation.
A commercial policy insuring a private passenger vehicle that is predominantly used for business purposes is not subject to the two percent limitation on non-renewals. Whether the insured motor vehicle is classified as a “private passenger vehicle” (or “personal vehicle”) is irrelevant in ascertaining whether Insurance Law § 3426 governs the policy.1
For further information you may contact Senior Attorney Camielle A. Campbell at the New York City office.
1 However, there are certain personal lines automobile insurance policies that carry a surcharge for business use factor. These policies are governed by Insurance Law § 3425 and are, therefore, subject to the two percent rule.