The office of General Counsel issued the following informal opinion on July 27, 2000, representing the position of the New York State Insurance Department.
RE: Insurance Premiums/Installment Payments
1. May an insurer allow an insured to make premium payments in installments?
2. If the answer to question 1 is yes, may the insurer charge an installment fee for the privilege?
3. If the answer to question 1 is yes, are installment fees part of the insurers premium schedule, which must be filed with and approved by the Department?
4. If the answer to question 1 is yes, may an insurer cancel a policy for non-payment of installment fees?
1. Yes. The New York Insurance Law neither authorizes nor prohibits insurers from charging fees with relation to an installment premium payment plan.
2. Yes. See 1 above.
3. No, but a schedule of such fees should be submitted to the Department, along with the policy forms, for informational purposes.
4. Yes, so long as the insured had been made aware of the contractual obligation to pay such fees.
An advisory opinion was requested but it was not related to any specific fact situation. Particular circumstances could well alter the responses set out above. Accordingly, one may wish to contact this Department in the future to further elucidate the details for any specific policy.
The Insurance Law does not specifically address installment fees, nor has the Department promulgated any regulations governing such fees. The Departments longstanding position regarding installment charges is that they are fees for services rendered in a consumer credit transaction not regulated by this Department. Accordingly, insurers may choose to offer an installment premium payment plan or not to offer one.
Installment fees are not considered a part of the insurers base premium and need not be included in the insurers rate filing to the Department. Installment fees are separate and distinct from the premium and should be displayed on the billing notice and/or cancellation notice. Any filing of an "installment fee schedule" with the Department would be accepted for informational purposes only.
However an insurer, that offers an installment payment option to certain classes of insureds but not all policyholders, may not unlawfully discriminate amongst policyholders. The insurer must justify such a distinction based upon valid underwriting criteria and such criteria must not violate any specific prohibition found in the Insurance Law.
An installment fee is an "obligation in connection with the payment of premiums on a policy of insurance or any installment of such premium", N.Y. Ins. Law §3425(a)(10) (McKinney Supp. 2000) and N.Y. Ins. Law §3426(a)(3) (McKinney Supp. 2000), that the insured may be required to pay and failure to pay such amounts would be nonpayment of premium. Therefore, an insurance company may cancel a policy, pursuant to the above cited sections of law, if the insured fails to pay installment fees.
If the insurer wishes to be able to cancel coverage for non-payment of installment fees, it must ensure that policyholders are aware of their additional contractual obligation to pay such fees. An insurer may chose (but is not legally required) to include policy provisions clearly indicating the amount of each applicable fee as well as specifying the circumstances under which the fee(s) would be payable. If such provisions were included in the policy, they would be subject to review and approval as part of the policy form filing.
For further information you may contact Associate Attorney Sam Wachtel at the New York City Office.