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

The Office of GeneralCounsel issued the following informal opinion on June 5, 2000 representing the position of the New York State Insurance Department.

Non-Owner Occupied 1- 4 Family Dwellings

Question Presented

Is a policy insuring loss of, or damage to, real property that is used predominantly for residential purposes and consisting of non-owner occupied 1 – 4 family dwellings considered commercial risk insurance, subject to N.Y. Ins. Law § 3426 (McKinney 1985 & Supp. 2000) or personal lines, subject to N.Y. Ins. Law § 3425 (McKinney 1985 & Supp. 2000)?

Conclusion

Such policy insuring no more than four dwelling units, whether owner-occupied or not, is considered personal lines subject to N.Y. Ins. Law § 3425 (McKinney 1985 & Supp. 2000).

Facts

Several carriers insure non-owner occupied 1 – 4 family dwellings on commercial forms using commercial rates and have inquired as to whether these risks are to be treated as personal lines policies subject to N.Y. Ins. Law § 3425 (McKinney 1985 & Supp. 2000) or commercial lines policies subject to N.Y. Ins. Law § 3426 (McKinney 1985 & Supp. 2000).

Analysis

The starting point for considering the application of the New York Insurance Law to the insurance of real property consisting of one to four dwelling units is N.Y. Ins. Law §§ 3425 and 3426 (McKinney 1985 & Supp. 2000), which set out, inter alia, the cancellation and renewal provisions for personal lines and commercial risk insurance. Policies covering such property have been described as being written on "commercial forms" using "commercial rates". However, other provisions of the Insurance Law govern rate and form requirements (Articles 23 and 34 of the Insurance Law). At the same time, there are sections of the Insurance Law that operate by cross reference to Sections 3425 and 3426, such as the flex-rating provisions. See N.Y. Ins. Law § 2344 (a)(1) (McKinney 1985 & Supp. 2000).

N.Y. Ins. Law § 3425 (McKinney 1985 & Supp. 2000) provides:

This section shall apply to covered policies of insurance as defined in paragraphs one, two and three hereof.

(1) "Covered policy" means a contract of insurance, referred to in this section as "automobile insurance", issued or issued for delivery in this state, on a risk located or resident in this state, insuring against losses or liabilities arising out of the ownership, operation, or use of a motor vehicle, predominantly used for non-business purposes, when a natural person is the named insured under the policy of automobile insurance.

(2) "Covered policy" also means a contract of insurance, referred to in this section as "personal lines insurance", other than a contract of insurance defined in paragraph one hereof, issued or issued for delivery in this state, on a risk located or resident in this state, insuring any of the following contingencies:

(A) loss of or damage to real property used predominantly for residential purposes and which consists of not more than four dwelling units, other than hotels and motels;

(B) loss of or damage to personal property in which natural persons have an insurable interest, except personal property used in the conduct of a business; and

(C) other liabilities for loss of, damage to, or injury to persons or property, not arising from the conduct of a business, when a natural person is the named insured under the policy.

(3) A personal umbrella liability policy shall be considered a "covered policy" under paragraph two, and not paragraph one, of this subsection.

Section 3425 (a)(2)(A), which does not distinguish between "owner occupied" and "non-owner occupied" real property (unlike, for example, Section 3403), provides that for a policy to be treated as a covered policy it may not insure against loss of, or damage to, more than four dwelling units. Hence, if a policy insures only against loss of, or damage to, one four-family building, it meets the description of personal lines per Section 3425 (a)(2)(A). However, if, for example, a policy insures one four-family house and also a single-family house, it no longer meets the description of personal lines per Section 3425 (a)(2)(A) because the policy now insures more than 4 dwelling units.

This interpretation of the statute is supported by the legislative history surrounding the amendment to Section 167-a, the predecessor of Section 3425. By Chapter 348 of the Laws of 1976, Section 167-a (1)(a)(i) was amended to provide that the cancellation and renewal provisions applicable to real property used for residential purposes would apply to property consisting of not more than 4 dwelling units, "thereby instituting a reasonable limitation". (Memorandum in Support of the Act to amend Section 167-a, May 19, 1976). Before the amendment, the statute permitted an unlimited number of dwelling units, provided the property was used predominantly for residential purposes. Clearly, the intent of the amendment was to limit to four the number of dwelling units covered under a single "personal lines" policy.

In addition, N.Y. Ins. Law § 3425 (a)(4) (McKinney 1985 & Supp. 2000) states that "[a] contract which insures any of the foregoing contingencies described in paragraph one or two hereof as well as other contingencies shall be a covered policy if that portion of the annual premium attributable to such foregoing contingencies exceeds that portion attributable to other contingencies." Thus, if the premium for "covered policy" contingencies is less than 50% of the total policy premium, then the policy is not subject to Section 3425.

Excluded from Section 3425 (a)(2)’s definition of personal lines insurance is business-related general liability coverage and business-related personal property coverage. A non-owner occupied dwelling that is rented-out is a business-related property. In this situation, if the combined premiums allocated to personal property and general liability exceed the real property premium, then the policy is not a personal lines policy. The manner in which Section 3425 (a)(4) operates is best illustrated by example.

Ex. A policy insures 2 two-family, non-owner occupied houses as follows:

Real Property  $3,000

          Personal Property 300

General Liability    2,800

          Total Premium   $6,100

The policy is not subject to Section 3425 since the premium for the covered policy contingency (real property) is less than 50% of the total premium.

Ex. A policy insures 2 two-family, non-owner occupied houses as follows:

Real Property $3,100

Personal Property 300

General Liability 2,700

Total Premium $6,100

The policy is subject to Section 3425 since the premium for the covered policy contingency (real property) is more than 50% of the total premium.

For further information contact Attorney Sally A. Geisel at the Department’s New York Office.