The Office of General Counsel issued the following informal opinion on December 8, 2000, representing the position of the New York State Insurance Department.
RE: N.Y. Ins. Law § 3425 Automobile Renewal and Cancellation Provisions
1) Does the Insurance Law permit an insurer to send notice of cancellation for non-payment of premium on a N.Y. Ins. Law § 3425 (McKinney 2000) renewal policy prior to the effective date of such policy?
2) Is an insurer required to provide written notice prior to the renewal of a N.Y. Ins. Law § 3425 (McKinney 2000) covered policy to the named insured regarding a change in its premium payment installment schedule?
1) The Insurance Law permits an insurer to establish a premium due date that is prior to a N.Y. Ins. Law § 3425 (McKinney 2000) renewal policys effective date and, after the due date, to send notice of cancellation for non-payment of premium prior to the effective date of the policy. However, cancellation may not take effect prior to the renewal policys effective date.
2) An insurer is not required, prior to the renewal of a N.Y. Ins. Law § 3425 (McKinney 2000) covered policy, to provide written notice to the named insured regarding a change in its premium payment installment schedule.
An insurance agent stated in its letter to the Department that one of its clients, whose automobile was insured by a New York State authorized insurer, was provided 20 days notice that his renewal policy would contain a different premium payment installment schedule than previously provided. The billing procedures were amended from six equal monthly installments to 50% deposit at renewal and five monthly installments. The agent further state that the insurer sent notice of cancellation for non-payment of premium on September 14, 2000, with cancellation to be effective October 1, 2000. The renewal policy effective date was September 19, 2000. The agent inquired whether the Insurance Law permits this insurer to send notice of cancellation for non-payment of premium prior to the renewal effective date. The agent further inquired whether the insurer was required to provide the insured with notice of the change in the renewal premium payment installment schedule, and if so, when such notice should have been sent.
For purposes of this opinion, "automobile" refers to a motor vehicle that is used for non-commercial purposes and is insured by a "covered policy" as defined by N.Y. Ins. 3425 (a) (1) (McKinney 2000).
N.Y. Ins. Law § 3425 (McKinney 2000) does not prohibit an insurer from advancing the due date of a § 3425 covered policy renewal premium. Thus, an insurer may request payment of the renewal policy premium prior to the renewal policys effective date. Additionally, N.Y. Ins. Law § 3425 (McKinney 2000) does not prohibit an insurer from sending notice of cancellation for nonpayment of premium prior to the renewal effective date if the insured fails to pay the premium when due. However, based on a practical application of N.Y. Ins. Law § 3425 (McKinney 2000), the cancellation may not take effect prior to the renewal policys effective date because in order to cancel a policy there must actually be a policy to cancel.
With respect to the facts presented, we find that the insurer did not violate N.Y. Ins. Law § 3425 (McKinney 2000). The insurer issued the cancellation at a date that was beyond the renewal policy effective date. Furthermore, the insurer provided at least 15 days notice of cancellation for nonpayment of premium, as required by N.Y. Veh. & Traf. Law § 313 (1) (a) (McKinney 1996), which states, in relevant part:
No contract of insurance shall be terminated by cancellation by the insurer until at least twenty days after mailing to the named insured at the address shown on the policy a notice of termination except where the cancellation is for nonpayment of premium in which case fifteen days notice of cancellation by the insurer shall be sufficient.
Unlike N.Y. Veh. & Traf. Law § 313 (1) (a) (McKinney 1996), N.Y. Ins. Law § 3425 (McKinney 2000) does not provide a minimum notification period for cancellation due to nonpayment of premium. What N.Y. Ins. Law § 3425 (McKinney 2000) does provide is a grace period that allows the insured to make timely payment if the insured pays within fifteen days after the insurer mails the notice of cancellation for nonpayment of premium. If the insured pays the amount due within the grace period, the insurer must reinstate the policy. This provision is contained in N.Y. Ins. Law § 3425 (a) (10) (McKinney 2000), which states:
"Nonpayment of premium" means the failure of the named insured to discharge any obligation in connection with the payment of premiums on a policy of insurance or any installment of such premium, whether the premium is payable directly to the insurer or its agent, or indirectly under any premium finance plan or extension of credit. Payment to the insurer, or to an agent or broker authorized to receive such payment, shall be timely, if made within fifteen days after the mailing to the insured of a notice of cancellation for nonpayment of premium.
N.Y. Ins. Law § 3425 (McKinney 2000) also does not impose upon the insurer a notification requirement for changing the premium payment installment schedule on the renewal policy. Therefore, the insurer did not violate the Insurance Law by sending "only 20 days prior notice" since N.Y. Ins. Law § 3425 (McKinney 2000) does not require the insurer to provide any prior notice at all. However, with respect to premium payment installment schedules, it should be noted that insurers may not offer different premium payment installment options to other tiers or classes of insureds in a manner that is unfairly discriminatory, as prohibited by Article 23 of the Insurance Law. Additionally, an insurer that amends its premium payment installment options in order to effectuate a withdrawal from the market will be required to offer options that are substantially similar to the options "offered by the automobile insurance plan established pursuant to article fifty-three of [the Insurance Law]." N.Y. Ins. Law § 3425 (n) (as added by L. 1992, c. 647 and amended by L. 1996, c. 42, eff. until April 30, 2001) (McKinney 2000). See also the Insurance Departments Circular Letter No. 25 (2000).
For further information you may contact Attorney Sally Geisel at the New York City Office.