March 12, 1984

SUBJECT: INSURANCE

CIRCULAR LETTER NO. 4 (1984)

TO: ALL INSURERS AND ALL INSURANCE AGENTS AND BROKERS DOING BUSINESS SUBJECT TO SECTIONS 167-a AND 167-aa OF THE INSURANCE LAW

The purpose of this letter is to set forth the obligations of insurers under the Insurance Law with respect to personal lines and it is also an amplification of Insurance Department Circular Letter No. 14 (1978) which addressed, among other matters, the right of the insured to representation by a terminated producer under Section 167-a of the Insurance Law.

I. Obligations of Insurers Under Sections 167-a and 167-aa of the Insurance Law

The Department has received inquiries about procedures followed by insurers upon the termination of producers which raise serious questions concerning insurer compliance with Sections 167-a and 167-aa of the Insurance Law.

We remind insurers that both Sections 167-a(9) and 167-aa(10) place an affirmative obligation on insurers writing personal lines business to make certain offers to each insured when they terminate the insured's insurance agent or broker.

Section 167-a(9) specifies that for personal lines policies other than automobile the insurer shall offer to continue a policy for any remaining part of the three year required policy period and shall offer to continue the policy through the terminated agent or broker for at least the next one year policy period which commences within one year after the date of mailing or delivery to the terminated producer of written notice of termination. Thereafter, at the specific request of the insured, the insurer shall offer to continue the policy through the terminated producer until the conclusion of the three year required policy period.

Section 167-aa(10) specifies that for automobile policies insurers shall offer to continue a policy for any remaining part of the one year required policy period and, unless the policy is cancelled or nonrenewed in accordance with the provisions of Section 167-aa, the insurer shall, at the specific request of the insured, offer to continue the policy through the terminated producer for three successive one year policy periods which commence within the year following the date of mailing or delivery to the terminated producer of written notice of termination.

A proper offer by the insurer would take the form of a letter sent to every personal lines insured whose producer of record has been terminated explaining the provisions of the statutes. Offers of continued insurance coverage and advice concerning the insured's rights under these statutes could also be satisfied by setting out the language of the statute itself or by summarizing it in the letter.

You are advised that the Department will enforce these statutory requirements by including a review of insurer compliance as a part of its market conduct investigations. Insurers writing 167-a and 167-aa business may wish to maintain records of mailing of letters sent to insureds notifying them of their statutory rights when their producers are terminated since such records would facilitate market conduct examinations.

II. Obligations of Terminated Insurance Agents and Brokers

The Department is concerned about the possible harm which may result to insureds after a producer's termination when coverage is replaced with another insurer. Replacement can result in higher premiums for the same coverages. Furthermore, insureds are also in jeopardy of having their replacement policies cancelled during the first sixty days they are in effect. If replacement policies are cancelled, insureds may find themselves without insurance or may be forced to resort to the residual market for coverage at much higher premiums.

An insurance agent or broker is expected to act in a competent, trustworthy and professional manner. When an insurance agent's or broker's account is terminated by an insurer and the agent or broker discusses replacement coverage with an insured, the insured has the right to know that he or she may continue coverage with the current insurer pursuant to the terms of Sections 167-a and 167-aa of the Insurance Law. The Department would also expect that the licensee will inform the insured of the exposure to cancellation if replacement of coverage is effected. Where the premium for a replacement policy is greater than the premium for similar coverage with the original carrier, the insured can make an informed decision whether or not to replace coverage only if such information is conveyed by the producer.

III. Acknowledgment of Circular Letter by Insurers

Insurers should acknowledge receipt of this Circular Letter and furnish a copy of the letter or letters which are being sent to insureds whose producers have been terminated. The acknowledgment and specimen letters should be sent within 30 days of receipt of this letter to:

Barbara A. Kluger, Esq.

Senior Attorney

N. Y. S. Insurance Department

2 World Trade Center

New York, N. Y. 10047

The reply letter and envelope should be endorsed "Circular Letter No. 4 (1984) Reply."

Very truly yours,

[SIGNATURE]

JAMES P. CORCORAN

Superintendent of Insurance