New York State Insurance Department Office of General Counsel Opinions for November 2009

From the NYS Insurance Department's website come these two Office of General Counsel Opinions from November 2009 relevant to property and casualty insurers doing business in New York, both involving the cancellation of regulated insurance policies.  

Cancellation of Insurance for Non-payment; Insured has Filed for Bankruptcy
OGC Op. No. 09-11-02 (November 6, 2009)

Question Presented:

Is there any provision in the Insurance Law or the regulations promulgated thereunder that prohibits an insurer from cancelling for nonpayment a marine insurance policy where the insured has filed for Chapter 11 bankruptcy protection?

Conclusion:

No.  There is nothing in the Insurance Law or regulations promulgated thereunder that prohibits an insurer from taking such an action.

Facts:

A commercial insured covered by a marine insurance policy filed for bankruptcy protection under Chapter 11 of the federal Bankruptcy Code. Following that filing, the insurer cancelled the policy for non-payment of premium. The insured’s counsel informed the insurer that the cancellation violates the “automatic stay” provided for under the federal Bankruptcy Code. The insurer then reinstated the policy as new business “until cancelled” with annual “renewal endorsements”.

Analysis:

New York Insurance Law § 3426(b) and (c) (McKinney 2006), which governs the cancellation of most commercial lines property/casualty insurance, is relevant to the inquiry. Those statutory provisions read in pertinent part as follows:

(b) During the first sixty days a covered policy is initially in effect, except for the bases for cancellation set forth in paragraph one, two or three of subsection (c) of this section, no cancellation shall become effective until twenty days after written notice is mailed or delivered to the first-named insured at the mailing address shown in the policy and to such insured's authorized agent or broker.

(c) After a covered policy has been in effect for sixty days unless cancelled pursuant to subsection (b) of this section, or on or after the effective date if such policy is a renewal, no notice of cancellation shall become effective until fifteen days after written notice is mailed or delivered to the first-named insured and to such insured's authorized agent or broker, and such cancellation is based on one or more of the following:

(1) With respect to covered policies:

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

* * * * *

Insurance Law § 3426(b) and (c) require an insurer to provide timely notice to the insured of cancellation on grounds of nonpayment of premium. Pursuant to that statute, if an insurer wishes to cancel a liability insurance policy, it must provide the requisite written notice to the insured that specifies the reasons for the cancellation. So long as the reason is not otherwise prohibited by law, the Insurance Law does not otherwise limit an insurer’s ability to cancel for nonpayment of premium. Nothing in the Insurance Law or the regulations promulgated thereunder otherwise prohibits an insurer for cancelling a policy for non-payment of premium where the insured has filed for bankruptcy protection.

Notably, Insurance Law § 3426(l)(2) provides that Insurance Law § 3426 does not apply to policies “principally marine insurance.” That Insurance Law § 3426 does not apply to marine insurance, however, is ultimately irrelevant to the inquiry in that there is no provision of the Insurance Law or regulations thereunder that contains any prohibition on cancellations for nonpayment where the insured has filed for bankruptcy protection under Chapter 11 of the Bankruptcy Code. Therefore, insofar as the Insurance Law is concerned, an insurer is free to cancel a policy for nonpayment of premium irrespective of the insured’s bankruptcy status.

For further information you may contact Supervising Attorney Michael Campanelli at the New York City Office.

Cancellation of Workers’ Compensation Insurance Policy
OGC Op. No. 09-11-03 (November 12, 2009)

Question Presented:

May an insurer cancel an insured’s current workers’ compensation insurance policy midterm for non-payment of the expired policy’s audit premium?

Conclusion:

(Yes.)  An insurer may cancel an insured’s current workers’ compensation insurance policy midterm for non-payment of the expired policy’s audit premium, so long as the policy does not contain any limitations to the contrary, and provided that the insurer complies with New York Workers Compensation Law § 54 (McKinney 2006), and any and all other applicable laws and regulations.

Facts:

An insurance producer reported that an insurer canceled an insured’s workers’ compensation insurance policy midterm because the insured did not pay the audit premium on its most recently expired policy. The producer also reported that the insurer had provided coverage to the insured for several years, and that none of the previous audits resulted in premium change except for the most recent audit, which resulted in a very large additional premium. The producer stated that the insured disputes the accuracy of the audit results, and for that reason, refused to pay the audit premium. The insurer subsequently canceled the insured’s current policy.

Analysis:

New York Insurance Law § 3426 (McKinney 2007) sets forth, among other things, the minimum cancellation provisions applicable to most property/casualty commercial lines insurance policies. However, Insurance Law § 3426(l)(2) explicitly excludes workers’ compensation and employers’ liability coverage. Instead, the cancellation provisions for workers’ compensation insurance are governed by Workers Compensation Law § 54(5), which reads as follows:

[text omitted]

Workers Compensation Law § 54(5) imposes no limitations on the reasons that an insurer may cancel a workers’ compensation insurance policy. Thus, unlike a policy subject to Insurance Law § 3426, a workers’ compensation insurance policy may be canceled by an insurer midterm for non-payment of the expired policy’s audit premium, so long as the policy does not contain any limitations to the contrary, and provided that the insurer complies with Workers Compensation Law § 54, and any and all other applicable laws and regulations. See Insurance Department’s Office of General Counsel Opinion dated May 3, 2005.

However, an insured may invoke the right of review of rating classifications afforded by Insurance Law § 2319. That statute permits an aggrieved insured to request, in writing, a review of the rating classification(s) applied to its policy. An insured that does not receive a timely response to its request for review, or receives an adverse determination, may appeal to the Superintendent for a hearing and new decision. Insurance Law § 2319 reads as follows:

[text omitted]

Thus, the right of review provided by Insurance Law § 2319 may assist the insured here in resolving its dispute over the expired policy’s premium audit.

For further information you may contact Associate Attorney Sally Geisel at the New York City Office.