OGC Opinion No. 09-10-03
The Office of General Counsel issued the following opinion on October 26, 2009, representing the position of the New York State Insurance Department.
RE: Policies Offered to Lender’s and Insurance Law § 9108
Question Presented:
Is a LPR policy subject to the fire insurance fee pursuant to Insurance Law § 9108?
Conclusion:
Yes, a LPR policy is subject to the fire insurance fee pursuant to Insurance Law § 9108, even though the policy is issued to a lender.
Facts:
The inquirer reports that its company offers a Lender’s Property Reporting (“LPR”) policy, which includes coverage for the peril of fire. The policy is sold to a lender and protects and covers only the lender's interest in mortgaged and investment properties; it does not provide coverage to the homeowner. The policy provides force-placed coverage, which covers direct physical loss or damage to buildings and certain personal property secured in conjunction with a mortgaged building, in order to reduce the lender’s exposure to loss if the mortgagor’s insurance coverage lapses. A master policy is issued and certificates are generated for each covered property, and there is a separate premium for each covered property. The policy may cover one- or two-family residential structures, but may also cover residential structures containing three or more residential structures, as well as commercial and investment property.
Analysis:
The inquirer asks whether a LPR policy is subject to the fire insurance fee. Insurance Law § 9108(a) is relevant to the question, and reads as follows:
Every insurance company authorized to do business in this state shall collect, in addition to the applicable premium charge, a fire insurance fee, separately identified and charged to each policyholder, from each such holder of a policy issued in the state or for delivery in the state for coverage of peril of fire, excluding a policy for protection of household furnishings and/or policies issued to protect one or two-family residential structures, schools, churches and hospitals.
A LPR policy is a master policy offered to the lender that protects the lender’s interest in commercial and investment properties and includes coverage for the peril of fire. There is no exception under Insurance Law § 9108(a) for excluding policies based on to whom the policy is issued. Thus, regardless of the fact that a LPR policy is issued only to a lender, the policy is still subject to the fire insurance fee pursuant to Insurance Law § 9108.
A LPR policy covers more than one property and a master policy is issued and certificates are generated for each covered property. Thus, in a LPR policy there may be numerous types of properties covered including a one- or two-family residential structure combined with three or more residential structures, or commercial and investment properties. If part of a LPR policy covers only one- or two-family residential structures, then the fire insurance fee does not apply to that part of the policy pursuant to the one- or two-family residential structures exclusion pursuant to Insurance Law § 9108(a). However, if a LPR policy also covers a residential structure containing three or more residential units, or covers commercial and investment properties, then the fire insurance fee applies to that part of the policy.
An insurer must allocate the part of the premium charged for each type of property covered under the LPR policy in order to determine what part of the premium is subject to the fire insurance fee. Here, however, it is not necessary to allocate the part of the premium charged for each type of property, since under the LPR policy the inquirer offers there is a separate premium for each covered property.
For further information, you may contact Special Counsel Elizabeth Barrett at the New York City Office.