The Office of General Counsel issued the following opinion on October 1, 2003, representing the position of the New York State Insurance Department.
Re: Notification of Late Payment Fee and Reinstatement Fee
Questions Presented:
1) Where an insurer notifies its insureds of the fees it will charge for late payment of premium and reinstatement of a canceled policy, and the consequences for failing to pay such fees, by including such information in an endorsement to the policy, is it necessary to have filed the endorsement with the Department prior to its use?
2) May an insurer notify its insureds of the fees it will charge for late payment of premium and reinstatement of a canceled policy, and the consequences for failing to pay such fees, by including such information in a billing statement? If that billing statement is attached to the cover of the policy, must it be filed with the Department?
3) May an insurer notify its insured of the fees it will charge for late payment of premium and reinstatement of a canceled policy, and the consequences for failing to pay such fees, by including such information on a sticker that will be adhered to the front cover of the policy? If so, must such "sticker" be filed with the Department prior to its use?
4) What constitutes a "reasonable" late payment fee and reinstatement fee?
Conclusions:
1) When a policy form is subject to filing and approval requirements under the New York Insurance Law, any endorsement thereto, including an endorsement that notifies insureds of the fees that will be charged for late payment of premium and reinstatement of a canceled policy (and the consequences for failing to pay such fees), must also be filed and approved by the Superintendent prior to its use.
2) An insurer may notify its insureds of the fees it will charge for late payment of premium and reinstatement of a canceled policy, and the consequences for failing to pay such fees, by including such information in a billing statement. Such billing statement, even though it is attached to the cover of the policy, does not have to be filed with the Department so long as it is obviously a billing statement and not part of the policy.
3) An insurer may notify its insured of the fees it will charge for late payment of premium and reinstatement of a canceled policy, and the consequences for failing to pay such fees, by including such information on a sticker that will be adhered to the front cover of the policy. Such sticker must be filed with the Department prior to its use, where the policy form itself is subject to filing and approval requirements, because this kind of permanent adherence to the policy page makes it part of the policy.
4) The Department would consider a fee reasonable if it generally equalled the cost to the insurer for foregoing premium collected in a timely manner, and for reinstating the policy. The fee should reflect the cost of business and services involved.
Facts:
The inquiry was general in nature, and no facts were provided.
Analysis:
For purposes of this opinion, a fee charged to an insured by an insurer for services provided in relation to an insureds late payment of premium, or policy reinstatement, shall be denominated a "late payment fee," and a "reinstatement fee," respectively. The Department makes a distinction between the meaning of the terms "late payment fee" and "reinstatement fee." A "late payment fee" refers to a fee associated with premium payment that is made at a time later than the premium due date, but prior to both policy cancellation and the time in which an insurer may reject premium payment. A "reinstatement fee" refers to a fee associated with the reinstatement of a policy after the cancellation date, or after the time in which an insurer may reject premium payment.
The Department views late payment fees and reinstatement fees to be properly classified as fees that are outside the rating structure, and which do not have to be filed with the Department or included as part of the manual rates. Such fees may be charged separately and apart from the policy premium because the expenses that such fees are meant to deflect arise independently from the issuance, underwriting, or general maintenance of insurance policies. These service fees, and any consequences an insured would experience for failure to pay such fees, must be clearly stated to the insured, whether by including this information in the policy form or in the billing statement.
Although these fees do not have to be submitted to the Department for rate filing purposes, an endorsement that informs the insured about the charging of late payment and reinstatement fees is a policy form and, therefore, must be filed and approved where the policy itself must be filed and approved (for example: N.Y. Ins. Law §§ 2307, 3201, 6609). If the endorsement is the only notification given to an insured about these fees, the endorsement must also state the consequences for failing to pay the fees.
An insurer may instead provide the insured with all of the necessary information regarding the charging of late payment and reinstatement fees in its billing statement. Billing statements are not considered part of the policy and do not, apart from extraordinary circumstances, have to be filed with the Department. However, if such billing statement is to be attached to the front of the policy, its format must be such that it is obvious that it is a billing statement and not part of the policy itself.
A sticker that provides the late payment and reinstatement fee information, which is to be adhered to the policy, would have to be filed with the Department where the policy form itself is required to be filed because the permanent nature of the adherence makes the sticker part of the policy.
With respect to what constitutes a reasonable fee, the Department would consider a fee reasonable if it generally equalled the cost to the insurer for foregoing premium collected in a timely manner, and for reinstating the policy. The fee should reflect the cost of business and services involved.
For further information you may contact Associate Attorney Sally Geisel at the New York City Office.