OGC Opinion No. 09-06-06
The Office of General Counsel issued the following opinion on June 15, 2009, representing the position of the New York State Insurance Department.
RE: Fire Insurance Fee and Businessowners Policies
Questions Presented:
1. What is the method for calculating the fire insurance fee for a businessowners policy that has separate, divisible premiums for property and liability coverages?
2. Should the fire insurance fee be levied on the whole property premium, when there are portions of the premium that do not include the peril of fire?
3. If inland marine coverage is included in a businessowners policy, is it subject to the fire insurance fee?
Conclusions:
1. The method for calculating the fire insurance fee for a businessowners policy that has separate, divisible premiums for the property and liability coverages, as set forth in N.Y. Ins. Law § 9101(b) (McKinney 2000), is to multiply 100% of the property premium by 1.25%, subject to the exceptions discussed below.
2. It depends. If the premium property is divisible and there are portions that do not include the peril of fire, then the fire insurance fee is not levied on that portion of the property premium. However, if the property premium is not divisible, then the fire insurance fee is levied on the whole property premium.
3. No, if inland marine coverage is included in a businessowners policy and the premium is divisible, it is not subject to the fire insurance fee.
Facts:
The inquirer reports that, prior to 2002, the property insurance portion of a premium for an Insurance Services Office (“ISO”) businessowners policy was indivisible from the liability insurance portion. Consequently, in order to determine the fire fee, the inquirer calculated the fee based upon 50% of the total premium times the statutory percentage of 1.25%. For example, where the premium was $2,418, the inquirer multiplied it by 50% to arrive at $1209, and then multiplied that figure by 1.25% for a total of $15.1125, which the inquirer then rounded to $15.12 for the final fee.
Since 2002, the inquirer reports that the ISO Businessowners Policy (“BOP”) has changed so that separate, divisible premiums are now calculated for the property and liability coverages. A client has asked the inquirer to change its method of calculating the fire fee to a straight 1.25% of the property portion of the BOP policy premium. The inquirer asks whether the method for calculating the fire fee prior to 2002 complies with the law.
The inquirer also states that a businessowners insurance premium does not specify the property insurance premium charge by peril. The inquirer reports that there is one premium calculation for the entire property portion per locations and there is seemingly no way to determine the fire-only premium. The inquirer asks how the fire insurance fee should be levied in those circumstances.
Finally, the inquirer asks whether inland marine coverage is subject to the fire insurance fee if it is included in a businessowners policy.
Analysis:
A. Calculating the Fire Insurance Fee
Insurance Law § 9101(b) is relevant to the first inquiry, concerning the method for calculating the fire insurance fee. That statue reads as follows:
"Premium" includes all amounts received as consideration for insurance contracts or reinsurance contracts, other than for annuity contracts, and includes premium deposits, assessments, policy fees, membership fees, and every other compensation for such contract.
Insurance Law § 9108 is also germane to the question, and reads as follows:
(a) Every insurance company authorized to do business in this state shall collect, in addition to the applicable premium charge, a fire insurance fee, separately identified and charged to each policyholder, from each such holder of a policy issued in the state or for delivery in the state for coverage of peril of fire, excluding a policy for protection of household furnishings and/or policies issued to protect one or two-family residential structures, schools, churches and hospitals.
(b)(1) The fee is hereby imposed at the rate of one and one-quarter per centum on the gross direct premium written on property or risks located in this state, provided, however, no fee shall be imposed on a policy to insure against peril of inland marine, ocean marine, automobile, or aircraft physical damage.
Thus, under Insurance Law §§ 9101 and 9108, the fire insurance fee about which the inquirer asks is levied on gross direct premiums written for the coverage of the peril of fire. When the fee applies to a multi-peril policy where a portion of the coverage applies to the peril of fire, then it is necessary to ascertain the proper amount of premium upon which the fire insurance fee should be imposed.
The Department previously addressed that issue in Circular Letter No. 19 (1982). That Circular Letter provides:
Of the multi-peril policies which are covered by this … Section for which the actual fire portion cannot be determined, the accepted fire portion for homeowners and commercial multiple peril policies are 35 and 50 per cent, respectively.
When the Department issued Circular Letter No. 19 in 1982, it was common for commercial multi-peril insurance policies to have indivisible premiums for the property and liability coverages. The Department identified the appropriate percentages for homeowners and commercial policies based on what portion of a typical policy covered the peril of fire. Since 1982, however, the ISO BOP has changed so that separate, divisible premiums are now calculated for the property and liability coverages. Thus, if there is a divisible property premium, the calculation of the fee is to multiply 100% of the property premium property by 1.25% pursuant to Insurance Law § 9108(b)(1), subject to the exceptions discussed in the sections that follow.
B. Levying the Fire Insurance Fee on Whole or Part of Property Premium
The fire insurance fee should not be levied on property insurance coverage that does not include the peril of fire if the premium for such coverage is divisible. For example, the Department’s Office of General Counsel (“OGC”) has opined that the fire insurance fee should not be levied on a portion of premium applied to coverage for equipment breakdown by endorsement where such coverage does not include coverage for the peril of fire. See OGC Opinion No. 06-09-01 (September 1, 2006).
Here, the inquirer states that a BOP premium does not specify the property insurance premium charge by peril. The inquirer reports that there is one premium calculation for the entire property portion per location, and there is seemingly no way to determine the fire-only premium.
Where the property premium is not divisible, then the fire insurance fee should be levied on the whole property premium, and the fee is calculated by multiplying 100% of the premium for property by 1.25%. This is because typically the fire exposure is the largest percentage of the overall property risk.
C. Inland Marine Damage
The inquirer’s final question asks whether inland marine coverage is subject to the fire insurance fee if it is included in a businessowners policy. Insurance Law § 9108(b)(1) states that “[n]o fee shall be imposed on a policy to insure against peril of inland marine, ocean marine, automobile, or aircraft physical damage.” Thus, if inland marine coverage is included in a BOP, and the premium for such coverage is divisible, then that portion of the premium is not subject to the fire insurance fee.
For further information, you may contact Special Counsel Elizabeth Barrett at the New York City Office.