The Office of General Counsel issued the following opinion on August 22, 2002, representing the position of the New York State Insurance Department.

Re: Electronic Transmission of Notices of Cancellation to Mortgagees

Questions Presented:

1. Does the New York Insurance Law require insurers to send a notice of cancellation or nonrenewal of a fire insurance policy to a mortgagee?

2. Does the New York Insurance Law require insurers to send a notice of cancellation or nonrenewal of an automobile insurance policy to an automobile lienholder?

3. Does the New York Insurance Law require insurers to retain proof of delivery of notices of cancellation?

4. May an insurer send a notice of cancellation to a mortgagee via electronic means?

5. May an insurer establish proof of delivery of a notice of cancellation to a mortgagee through an electronic record of transmission?

Conclusions:

1. Yes. N.Y. Ins. Law § 3404(e) (McKinney 2000) requires insurers to send a notice of cancellation to a mortgagee. However, section 3404 is silent regarding whether an insurer must provide a notice of nonrenewal to a mortgagee. If the fire insurance policy, however, contains a provision that requires an insurer to send a notice of nonrenewal to a mortgagee, such notice must be provided in accordance with the provisions of the insurance policy.

2. No. The New York Insurance Law does not specifically require insurers to send a notice of cancellation or nonrenewal of an automobile insurance policy to an automobile lienholder. If the automobile insurance policy, however, contains a provision that requires an insurer to send a notice of cancellation or nonrenewal to an automobile lienholder, such notice must be provided in accordance with the provisions of the insurance policy.

3. The New York Insurance Law does not specifically require insurers to retain proof of delivery. However, the case law indicates that such proof must be adduced before an insurer can have the benefit of the presumption of delivery by mail.

4. Nothing in the Insurance Law specifically prohibits an insurer from sending a notice of cancellation to a mortgagee via electronic means.

5. Nothing in the Insurance Law specifically prohibits an insurer from establishing such proof of delivery through an electronic record of transmission.

Facts:

No specific facts were provided relative to the above questions.

Analysis:

A. Requirements for Sending Notices of Cancellation or Nonrenewal to Mortgagees and Automobile Lienholders.

Mortgagees

N.Y. Ins. Law § 3404(e) (McKinney 2000) prescribes standard provisions for fire insurance policies and provides that "if loss hereunder is made payable, in whole or in part, to a designated mortgagee not named herein as the insured, such interest in this policy may be cancelled by giving to such mortgagee a ten days’ written notice of cancellation." See section 3404(e), "Mortgagee interests and obligations" clause, at lines 68-73. A mortgage clause in a standard fire insurance policy creates separate and independent insurance of the mortgagee’s interest as if it had received a separate policy. See Citibank, N.A. v. Covenant Ins. Co., 150 Misc. 2d 129, 567 N.Y.S.2d 983 (Sup. Ct. Rockland County 1991); National Factors, Inc. v. Waters, 42 Misc. 2d 822, 249 N.Y.S.2d 121 (Sup. Ct. New York County 1964).

N.Y. Ins. Law § 3404(e) (McKinney 2000) is silent regarding whether an insurer must provide a notice of nonrenewal to a mortgagee. Absent a statutory or contractual provision requiring a notice of nonrenewal to a mortgagee, such notice is not required. N.Y. Ins. Law §§ 3425(d)(1) (McKinney 2000), which applies to personal lines insurance, and 3426(e)(1) (McKinney 2000), which applies to commercial lines insurance, generally require insurers to send notices of nonrenewal to insureds. However, there is no case law in New York that directly addresses whether sections 3425(d)(1) and 3426(e)(1) apply to mortgagees, because of their status as "insureds".

Automobile Lienholders

The New York Insurance Law and the Vehicle and Traffic Law do not specifically require insurers to send a notice of cancellation or nonrenewal to an automobile lienholder. New York courts have held that an insurer is under no statutory obligation to provide a notice of cancellation to a party designated as a loss payee (or automobile lienholder), who is a mere appointee with the right to receive the proceeds of the loss to a certain extent. See Schleimer v. Empire Mutual Ins. Co., 71 Misc. 2d 1014, 337 N.Y.S. 2d 872 (Sup. Ct. Appellate Term, 1st Dept. 1972); see also Dyer v. Great Eastern Ins. Co., 41 A.D.2d 581, 340 N.Y.S.2d 3 (3d Dept. 1973). If the automobile insurance policy, however, contains a specific provision that requires an insurer to provide a notice of cancellation or nonrenewal to an automobile lienholder, such notice must be provided in accordance with the provisions of the insurance policy. See, eg., Oneida Nat. Bank & Trust Co. v. Zurich Ins. Co., 67 Misc. 2d 617, 323 N.Y.S. 2d 19 (City Court Oneida County 1971).

B. Electronic Transmission of Notices of Cancellation

New York State has enacted the Electronic Signatures and Records Act ("ESRA") as part of Chapter 4 of the Laws of 1999 that added the State Technology Law as new Chapter 57-A of the Consolidated Laws, N.Y. State Tech. Law §§ 101-109 (McKinney Pamphlet 2002). ESRA establishes a legal framework in New York for the conduct of electronic commerce.

Pursuant to N.Y. State Tech. Law § 105(3) (McKinney Pamphlet 2002), electronic records are given the same force and effect as records not produced by electronic means. Section 109 provides that the use of an electronic record must be voluntary. An entity or person is not required to use an electronic record, unless otherwise provided by law.

Moreover, the federal "Electronic Signatures in Global and National Commerce Act" (E-Sign), 15 U.S.C.A. §§ 7001-7031 (2000) (E-Sign), provides that electronic records may not be denied legal effect, validity or enforceability solely because they are made electronically. Under E-Sign, consumers must consent to the use of an electronic record. See 15 U.S.C.A. § 7001 (2000).

Currently, no reported New York case has examined whether the electronic transmission of a notice of cancellation to a mortgagee is permissible under ESRA or E-Sign and the Insurance Law. As stated above, N.Y. Ins. Law § 3404(e)(McKinney 2000) requires an insurer to give a ten day written notice of cancellation of fire insurance policy to a mortgagee. Accordingly, pursuant to ESRA, the notice can be given electronically, provided that the mortgagee consents to such mode of delivery.

C. Establishing Proof of Delivery of a Notice of Cancellation through an Electronic Record of Transmission.

Although the New York Insurance Law requires insurers to provide a notice of cancellation to a mortgagee, it does not specifically require insurers to retain proof of delivery. Nor does the New York Insurance Law specifically address what constitutes sufficient proof of delivery of a notice of cancellation to a mortgagee. Consequently, there is no specific statutory prohibition against establishing such proof of delivery through an electronic record of transmission.

However, case law indicates that such proof must be adduced before the insurer can have the benefit of the presumption of delivery by mail. See Thomas v. Government Emp. Ins. Co., 61 A.D.2d 1044, 403 N.Y.S.2d 121 (2d Dept. 1978). Generally speaking, the question of whether an insurer has established sufficient proof of mailing is a factual question that should be resolved by a court of competent jurisdiction. For example, in Hantman v. Helsmoortel-Thornton Agency, Inc., 224 A.D.2d 752, 636 N.Y.S.2d 934 (3d Dept. 1996), the insurer produced a list of policyholders to whom cancellation notices were mailed, along with their policy numbers. The list was denominated a certificate of mailing and bore a date and location stamp placed by the postal service employee at the time of mailing. A copy of the notice of cancellation was also sent to and received by the mortgagee. The court held that the insurer had established sufficient proof of mailing a notice of cancellation of a fire insurance policy to the insured, even though it had not demonstrated that the notice was sent in accordance with regular business procedure geared towards ensuring that notices are always properly addressed and mailed.

In New York Central Emp. Albany Dist. Federal Credit Union No. 5119 v. Commercial Credit Co. of Newark, N.J., 13 Misc. 2d 874, 178 N.Y.S.2d 977 (City Ct. Albany County 1958), the court held that the insurer had established sufficient proof of mailing a notice of cancellation to a lienholder named in the loss payable clause in an automobile insurance policy. The parties stipulated that if the agent of the insurer was called as a witness, it would testify on behalf of the insurer that a notice of cancellation was duly mailed to the loss payee. In holding in favor of the insurer, the court stated that a letter, properly addressed, stamped and mailed is duly delivered to the addressee. Mere denial of receipt is insufficient to rebut the presumption of delivery.

Please note that this opinion is strictly limited to the New York Insurance Law. The inquirer was directed to contact the New York State Department of Motor Vehicles for their interpretation pursuant to the New York Vehicle and Traffic Law.

For further information, you may contact Attorney Pascale Joasil at the New York City office.

See also Jones v. Allstate Ins. Co., 221 A.D.2d 596, 634 N.Y.S. 2d 176 (2d Dept. 1995); State-wide Ins. Co. v. Simmons, 201 A.D.2d 655, 608 N.Y.S.2d 274 (2d Dept. 1994); Sanders v. Chautauqua County Patrons Fire Relief Association, 67 A.D.2d 1091, 415 N.Y.S. 2d 160 (4th Dept. 1979); Allstate v. Peruche, 100 A.D.2d 935, 474 N.Y.S. 2d 845 (2d Dept. 1984).