New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

The Office of General Counsel has issued the following informal opinion on May 11, 2000 representing the position of the New York State Insurance Department.

Insurer’s Obligations under Regulation 79

Question Presented:

Does the physical damage coverage on a used automobile under a newly issued policy placed through the New York Automobile Insurance Plan (NYAIP) lapse when there is a mandatory 5-day deferral of inspection and the automobile is not inspected, and the insurer is in possession of a signed NYAIP Authorization for Inspection - Acknowledgement Form, even though the producer of record did not give verbal notice of the location of the inspection sites and the consequence of the insured’s failure to obtain a timely inspection?

Conclusion:

Yes, physical damage coverage on a used automobile under a newly issued policy placed through the NYAIP would lapse when there is a mandatory 5-day deferral of inspection and the automobile is not inspected, even though the producer did not give verbal notice of the location of the inspection sites and the consequence of the insured’s failure to obtain a timely inspection, provided that the producer obtained a signed NYAIP Authorization for Inspection – Acknowledgement Form, which indicates the inspection site on the form.

Facts:

A law firm representing an insurance company in litigation requests clarification of an insurance company’s responsibilities pursuant to N.Y. Comp. Codes R. & Regs. tit. 11, sections 67.4(c) (1986), 67.6(c) (1986) and 67.8 (1988) (Regulation 79). Specifically, in reference to the verbal notice set forth in section 67.4(c) in the case of the mandatory photo inspection of a used automobile, when the policy is an assigned risk policy placed through the NYAIP.

The facts presented consist of the following: An insured acquires insurance on a used automobile through the NYAIP via an independent insurance broker. All of the transactions between the insurance broker and insured take place by telephone, fax and mail. The insurance broker faxes a copy of the NYAIP Authorization for Inspection – Acknowledgement Form to the insured, which the insured signs and faxes back to the broker. Based upon the signed form, the broker signed an original form on behalf of the policyholder. The broker asserts that he told the insured where he could go to get his vehicle inspected, that he had five days to do so, and that if he failed to have the vehicle inspected, his coverage would lapse. However, the insured claims that he was unaware of the photo inspection requirement, and he denies that the broker gave him verbal notice of the mandatory photo inspection requirement.

The broker submits the insured’s application to the NYAIP, which assigns an insurer to provide the insurance coverage. The insured does not have his automobile inspected as required, and therefore, the insurer suspends physical damage coverage and sends him a notice to that effect. A short time later, the insured is in an accident with his vehicle, which renders it a total loss. The insured calls the broker to find out who his insurer is and then files a claim, with the insurer. The insurer denies coverage as a result of the insured’s failure to have the vehicle inspected.

Analysis:

INSURER’S REQUIREMENTS UNDER REGULATION 79

N.Y. Ins. Law section 3411(d) (McKinney 1985) imposes an inspection requirement for new policies, and provides as follows:

(d) A newly issued policy shall not provide coverage for automobile physical damage perils prior to an inspection of the automobile by the insurer.

Regulation 79 (11 N.Y.C.R.R. 67) (1986) implements the provisions of N.Y. Ins. Law section 3411 (McKinney 1985 & Supp. 1999-2000) and sets forth the standards and procedures for the requisite inspections. N.Y. Comp. Codes R. & Regs. tit. 11, section 67.4 (1986) allows an insurer to defer the mandatory inspection for a period of five days following the effective date of the coverage. N.Y. Comp. Codes R. & Regs. tit. 11, section 67.8 (1988) makes the five day deferral mandatory in the case of new business assigned under the NYAIP.

N.Y. Comp. Codes R. & Regs. tit. 11, section 67.4(c)(1) (1986) (Regulation 79) states in relevant part:

[A]n insurer shall either immediately confirm physical damage coverage and remind the insured of the inspection requirement on a prescribed confirmation letter or immediately obtain the prescribed acknowledgment signed by the insured (applicant). Insurers must use the prescribed CONFIRMATION OF PHYSICAL DAMAGE COVERAGE – NOTICE OF MANDATORY PHOTO INSPECTION REQUIREMENT letter (NYS APD form B), with a copy thereof to the producer of record, or the prescribed ACKNOWLEDGMENT OF REQUIREMENT FOR PHOTO INSPECTION (NYS APD form D), contained in section 67.11 of this Part. . . . The insurer shall, at the time coverage is effected, furnish the insured with an inspection site where the inspection can be conducted during the five-calendar-day period. The location of an inspection site or sites and the consequences of the insured’s failure to obtain a timely inspection shall be furnished immediately to the insured either in person or by telephone. Documentation of such verbal notice, including the name of the person giving the notice and the identity of the site(s) provided must be contained in the insured’s policy record. (emphasis added).

This provision places an affirmative obligation upon the insurer to obtain either a written acknowledgment (Form D) from the insured that he was notified of the photo inspection requirement, or immediately send the prescribed reminder letter- "Confirmation of Physical Damage Coverage- Notice of Mandatory Photo Inspection Requirement" (Form B) to the insured. A copy of the Form B with a certificate of mailing, or the Form D shall be retained by the insurer, pursuant to the regulation. In addition, section 67.4(c) contains a requirement that the insurer immediately notify the insured verbally of the consequences of failing to obtain an inspection within the five-day period, and provide a list of inspection sites. Documentation of this verbal notice must be contained in the insured’s policy record.

Both verbal and written notices are required to be given by the insurer under Regulation 79. Generally, however, while the regulation places the burden on the insurer to give notice, the Courts are willing to accept notice by the broker or agent as sufficient so long as the facts demonstrate that the insured was made aware of the inspection requirement.

N.Y. Comp. Codes R. & Regs. tit. 11, section 67.6(c) (1986) (Regulation 79), sets forth the consequences in circumstances where the insurer, fails to comply with Section 67.4(c)(1). It states in relevant part that:

If the automobile is not inspected pursuant to this Part [1] due to the fault of the insurer, [2] or the insurer fails to give the oral notice required by section 67.4(c) of this Part [3] or mail or deliver the CONFIRMATION OF PHYSICAL DAMAGE COVERAGE – NOTICE OF MANDATORY PHOTO INSPECTION REQUIREMENT (NYS APD form B), or obtain the ACKNOWLEDGMENT OF REQUIREMENTS FOR PHOTO INSPECTION (NYS APD form D), contained in section 67.11 of this Part, physical damage coverage on the automobile shall not lapse. . . . (emphasis and numbers added ).

It is the intent of this regulation that an insured be given the requisite opportunity to have the vehicle inspected within the five-day period prior to the suspension of coverage, and that without this opportunity, coverage should not be suspended. Therefore, the coverage remains in effect if the automobile is not inspected due to the fault of the insurer, or if the insurer fails to give oral notice, or if the insurer fails to deliver the written requirement as stated above (either by sending the Form B or obtaining the Form D). If the insurer fails to do any one of the above, the insurer has not fulfilled its obligations under Section 67.4(c)(1).

INSURER’S REQUIREMENTS UNDER THE NYAIP

(Assigned Risk Plan)

The regulation for a vehicle insured under the NYAIP is different, since the NYAIP does not have to comply with Regulation 79. This is because the NYAIP is a separate plan that has been approved by the Insurance Department as an assigned risk plan.

For vehicles insured under the New York Automobile Insurance Plan, N.Y. Comp. Codes R. & Regs. tit. 11, section 67.8 (1986) (Regulation 79) states that: "The plan shall have the same rights and obligations as an insurer to arrange for and complete inspections required by section 3411 of the Insurance Law. . . ."

Pursuant to NYAIP’s Plan of Operations of New York Automobile Insurance Plan to Comply with Regulation 79, where new business is placed through NYAIP, as in the instant case, the obligation to remind the insured of the inspection requirement and of the consequence of failing to obtain a timely inspection, as well as furnishing the inspection site, is placed upon the producer. Moreover, NYAIP has its own acknowledgement form, called the NYAIP Authorization for Inspection – Acknowledgement Form (NYAIP Authorization Form), to complete instead of the Regulation 79 Form D. The forms differ in that, under NYAIP, the producer must complete the NYAIP Authorization Form, and must designate the inspection company who will make the inspection. Thus, the insured receives written notice of the inspection site (since it is designated on the form by the producer which the insured signs), and that notice is deemed sufficient. As a consequence, the NYAIP does not require verbal notice as well.

However, N.Y. Comp. Codes R. & Regs. tit 11, section 67.8 (1986) and the NYAIP rules do not relieve the insurer of its obligations under N.Y. Comp. Codes R. & Regs. tit 11, section 67.4(c)(1). The NYAIP is composed of individual insurance companies who are ultimately responsible for providing insurance coverage to insureds. It is not the NYAIP who provides the insurance coverage. Thus, if it is determined that notice of the inspection requirement was not properly given to the insured, then it is the insurer who is responsible for providing coverage to the insured.

In this instance, since this is a NYAIP policy, the broker was not required to provide the insured with oral notice of the inspection requirement. Rather, the broker must use a NYAIP Authorization Form that lists the inspection site and that is signed by both the insured and the broker. In such a case, the physical damage coverage would lapse if the insured does not have the vehicle inspected. If the faxed form contained the requisite information, it would be valid, and the fact that the broker completed a new form does not negate the broker’s fulfillment of the notice requirement.

For further information you may contact Attorney Meredith S. Katz at the New York City office.