The Office of General Counsel issued the following opinion on August 27, 2003, representing the position of the New York State Insurance Department.
Re: Termination of Producer-Insurer Contract and N.Y. Ins. Law § 3425(j)(1)(A)
Question Presented:
With respect to a voluntary renewal of a covered policy of personal lines insurance described in N.Y. Ins. Law § 3425(a)(2) (McKinney Supp. 2003), what is an insurers obligation regarding the continuation of coverage if the producer-insurer contract has been terminated?
Conclusion:
Where a producer-insurer contract has been terminated, an insurer must offer to keep the personal lines insurance policy in force for the remainder of the three-year required policy period. Additionally, the insurer must offer to continue the policy through the terminated producer for at least its next one year policy period that commences within one year following the date that the termination notice is delivered to the producer. Thereafter, at the specific request of the insured, the insurer must offer to continue the policy through the terminated producer for any remaining part of the three year required policy period.
The producers rights under § 3425(j) are, however, subject to the continuation of the policy. The insurer may cancel or non-renew the policy as permitted under applicable provisions of § 3425, and in such circumstance, the insurer is not required to make the offers above-described.
Facts:
The following information was provided with respect to an inquiry received by the Department:
A personal umbrella policy was written as new business effective March 26, 1991 and continuously renewed by the same insurer until 2003. The insurer sent a notice to the producer in late July 2001 that the producers contract with the insurer would be terminated effective January 31, 2002. Despite a request from the insured, the insurer has refused to issue a renewal of the umbrella policy effective March 26, 2003 through the producer because they believe they have met the requirements of Section 3425(j)(1)(A) of the New York Insurance Law.
The inquiry further described the insurers reasoning for refusing to issue the renewal policy through the producer.
Analysis:
N.Y. Ins. Law § 3425 provides, among other things, the cancellation and renewal provisions for certain property/casualty insurance policies. N.Y. Ins. Law § 3425(a) states in relevant part:
(a) This section shall apply to covered policies of insurance as defined in paragraphs one, two and three hereof.
(1) "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.
(2) "Covered policy" also means a contract of insurance, referred to in this section as "personal lines insurance", other than a contract of insurance defined in paragraph one hereof, issued or issued for delivery in this state, on a risk located or resident in this state, insuring any of the following contingencies:
(A) loss of or damage to real property used predominantly for residential purposes and which consists of not more than four dwelling units, other than hotels and motels;
(B) loss of or damage to personal property in which natural persons have an insurable interest, except personal property used in the conduct of a business; and
(C) other liabilities for loss of, damage to, or injury to persons or property, not arising from the conduct of a business, when a natural person is the named insured under the policy.
(3) A personal umbrella liability policy shall be considered a "covered policy" under paragraph two, and not paragraph one, of this subsection.
A personal umbrella liability policy is thus a personal lines insurance covered policy described in N.Y. Ins. Law § 3425(a)(2) that is subject to N.Y. Ins. Law § 3425(j)(1)(A), which states:
(j) (1) Where an insurer or an agent who is authorized by such insurer to accept lines of insurance from licensed agents or brokers notifies a licensed agent or broker that its contract or account shall be terminated:
(A) with respect to a personal lines insurance policy required to be continued by this section, the insurer shall offer to continue the policy for any remaining part of the required policy period and any statutory extension and the insurer shall offer to continue the policy through the terminated agent or broker for at least its next one year policy period which commences within one year following the date of mailing or delivery to the terminated agent or broker of written notice of termination of such contract or account, and thereafter, at the specific request of the insured, shall offer to continue the policy through such terminated agent or broker for any remaining part of the required policy period including statutory extension[.]
Where a producer-insurer contract has been terminated, an insurer must offer to keep the personal lines insurance policy in force for the remainder of the three-year required policy period. Additionally, the insurer must offer to continue the policy through the terminated producer for at least its next one year policy period that commences within one year following the date that the termination notice is delivered to the producer. Thereafter, at the specific request of the insured, the insurer must offer to continue the policy through the terminated producer for any remaining part of the three year required policy period. (For example: if a required policy period ran from 3/26/2000 3/26/2003, and the termination notice was delivered to the producer on 7/31/2001, the insurer must offer to continue the policy through the terminated producer until 3/26/2002. Thereafter, if the insured specifically requests such, the insurer must continue the policy (renew) through the terminated producer through 3/26/2003.) In this instance, because the termination notice was delivered to the producer prior to the third year of the three-year policy period, the insurers obligation to continue the policy through the producer ended on the expiration date of the policy. Only if the termination notice had been delivered to the producer in the third year of the three-year policy period would the statutory requirements of § 3425(j)(1)(A) apply to the next three-year policy renewal.
The producers rights under § 3425(j) are, however, subject to the continuation of the policy. The insurer may cancel or non-renew the policy as permitted under § 3425, and in such circumstance, is not required to make the offers above-described.
For further information you may contact Associate Attorney Sally Geisel at the New York City Office.