OGC Opinion No. 04-03-03: Termination of Producer-Insurer contract Non-renewal of automobile insurance

OGC Op. No. 04-03-03

The Office of General Counsel issued the following opinion on March 3, 2004, representing the position of the New York State Insurance Department.

Re: Termination of Producer-Insurer contract Non-renewal of automobile insurance

Question Presented:

May an insurer non-renew a personal automobile insurance policy originally issued February 23, 2001 for the reason that the insurer terminated its non-exclusive relationship with the insureds agent in July of 2002?

Conclusion:

The insurer may non-renew the personal automobile insurance policy for such reason in accordance with N.Y. Ins. Law § 3425(f) (McKinney Supp. 2004).

Facts:

An insurer terminated an insurance agents non-exclusive relationship with the insurer in or around July 2002. The insurer provided its insured with a notice of non-renewal of a personal automobile insurance policy dated January 3, 2004. The notice stated that coverage would last until February 23, 2004, the end of the current insurance period. The original effective date of the policy was February 23, 2001. The reason provided was that the insureds agent no longer had a business relationship with the insurer.

Analysis

Section 3425(d)(1) (McKinney Supp. 2004) requires that the "specific reason or reasons for nonrenewal or conditioned renewal shall be stated in or shall accompany the notice." The Department has opined that the type of reason provided in the notice of non-renewal at issue satisfies Section 3425(d)(1). Presumably, the insurer is counting the non-renewal of the policy among its right to non-renew pursuant to Section 3425(f) (McKinney Supp. 2004), which provides:

(f)(1) With respect to automobile insurance policies, the total number (rounded to the nearest whole number) of notices of intention not to renew a covered policy, and of notices of intention to condition renewal upon reduction of limits or elimination of any coverages, which an insurer may issue shall be limited for each calendar year to two percent of the total number of covered policies of the insurer in force at last year-end in each such insurers rating territory in use in this state which have completed their required policy period under this section. However, the insurer may non-renew or conditionally renew one policy in any such insurers rating territory in use in this state, if the applicable percentage limitation results in less than one policy. Cancellations made pursuant to subsection (b) or (c) of this section shall be independent of and in addition to the number of notices of intention not to renew or to condition renewal upon reduction of limits or elimination of any coverages not required by law, permitted under this subsection.

(2) For every two new automobile policies which the insurer voluntarily writes in each such territory, such insurer shall be permitted to non-renew or conditionally renew one additional automobile policy in that territory in excess of the two percent limit established in paragraph one of this subsection, subject to a fair and nondiscriminatory formula developed by the superintendent, which shall consider the number of automobile policies written less cancellations initiated by the insurer within the first sixty days of the policy.

N.Y. Ins. Law § 3425(j)(1)(B) (McKinney Supp. 2004) states as follows:

(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:

(B) with respect to an automobile insurance policy subject to this section, the insurer shall offer to continue the policy for any remaining part of the required policy period and, unless the policy is cancelled or non-renewed in accordance with the provisions of either subsection (b), (c) or (f) of this section, it shall, at the specific request of the insured, offer to continue the policy through the terminated agent or broker for three successive one year policy periods which commence within the year following the date of mailing or delivery to the terminated agent or broker of written notice of termination of such contract or account; (Emphasis added).

The terminated agents rights in subparagraph (B), however, are conditioned upon the policy remaining in force and are subject to the cancellation and non-renewal provisions of (b), (c) and (f) of Section 3425. In addition, N.Y. Ins. Law § 3425(j)(1)(E) (McKinney Supp. 2004) subjects such rights to the superseding right of the insurer pursuant to subsection (b), (c) or (f) of Section 3425 to cancel or non-renew.

Section 3425(j)(1)(E) provides:

(E) the provisions of subparagraph (B) hereof in relation to continuation of coverage for three successive one year policy periods are subject to the rights of the insurer pursuant to subsection (b), (c) or (f) of this section to cancel or non-renew. The provisions of subparagraph (D) hereof in relation to commissions shall not be mandatory after completion of the three one year policy periods provided for in subparagraph (B) hereof.

If the insurer is subsequently found to be in violation of the number of non-renewals permitted under statute, the insurer would be subject to discipline by the Department.