New York State Insurance Department Office of General Counsel Opinions for September 2008

Just posted to the NYS Insurance Department's website are the Office of General Counsel Opinions from September. Of the 15 opinions posted, only two are directly relevant to P&C insurers for that month.

Cancellation of Homeowner's Insurance Policy Based Upon Pending Foreclosure Action (September 10, 2008)

Question presented:

May an insurer cancel a homeowner’s insurance policy based solely on notification by the bank of an impending or commenced foreclosure action?

Conclusion:

No. An insurer may not cancel a homeowner’s insurance policy based solely on notification by the bank of an impending or commenced foreclosure action, because a foreclosure filing is not one of the permissible grounds for cancellation set forth in N.Y. Ins. Law § 3425(c)(2).

Insurance Law § 3425(c) prevents an insurer from cancelling a personal lines insurance policy that has been in effect for more than 60 days, unless the cancellation is based on one of the permissible grounds set forth in the statute itself:

(c) After a covered policy has been in effect for sixty days, or upon the effective date if the policy is a renewal, no notice of cancellation shall be issued to become effective unless required pursuant to a program approved by the superintendent as necessary because a continuation of the present premium volume would be hazardous to the interests of policyholders of the insurer, its creditors or the public, or unless it is based on one or more of the following:

* * *

(2) With respect to personal lines insurance policies:

(A) nonpayment of premium, provided, however, that a notice of cancellation on this ground shall inform the insured of the amount due;

(B) conviction of a crime arising out of acts increasing the hazard insured against;

(C) discovery of fraud or material misrepresentation in obtaining the policy or in the presentation of a claim thereunder;

(D) discovery of willful or reckless acts or omissions increasing the hazard insured against;

(E) physical changes in the property insured occurring after issuance or last annual anniversary date of the policy which result in the property becoming uninsurable in accordance with the insurer's objective, uniformly applied underwriting standards in effect at the time the policy was issued or last voluntarily renewed[.]

In the OGC's opinion, the filing of a foreclosure action does not constitute any of these grounds. It is not, in and of itself, an increase of the hazard insured against or a physical change in the property.

Public Adjuster Ownership of Construction Company (September 10, 2008)

Question presented:

May an individual licensed as a public adjuster and owner of a public adjusting company act as an owner and principal of a construction/renovation company at the same time?

Conclusion:

Yes, an individual licensed as a public adjuster and owner of a public adjusting company may act as an owner and principal of a construction/renovation company at the same time. However, the public adjuster must take care to comply with the New York Insurance Law in the conduct of his or her business as both a public adjuster and owner of a construction/renovation company.

The OGC reminds public adjusters that they may not charge more than 12.5% of the insured's insurance recovery in compensation for their services as public adjusters, and that when the public adjuster also performs contracting or other work for the insured, there must be full disclosure of the relationship to prevent a potential conflict of interest and to make certain that the insured is properly informed. See OGC Opinion 07-06-25 (June 26, 2007):

At all times, the public adjuster/construction company owner must take care to record transactions conducted in both capacities with the utmost transparency and specificity, so as to dispel any inference of impropriety. The public adjuster’s agreement therefore should be in writing, and separate and distinct from the construction/renovation agreements. The public adjuster/construction company owner also would be well-advised to thoroughly itemize fees for the construction company’s services in writing, so as to avoid the appearance of any overlap with adjuster’s fees and to ensure that the transaction is conducted at arm’s length.

The Department may subject the adjuster to disciplinary action under Insurance Law § 2110 for violating the law or engaging in conduct found to be fraudulent, dishonest or otherwise untrustworthy. And in bringing such a proceeding, the Department would not be limited to services that the public adjuster performed that were within the scope of his or her license.