The office of General Counsel issued the following informal opinion on January 17, 2001, representing the position of the New York State Insurance Department.
Re: Automobile Renewal and Cancellation Provisions.
May an automobile insurance policy be effectively canceled when the effective date of the notice of cancellation falls on the same day as the renewal policys effective date?
Yes. A policy is effectively canceled under the above scenario so long as the cancellation date falls on the renewal date or after. The Insurance Law permits an insurer to establish a premium due date that is prior to a renewal policys effective date and, after the due date, to send a notice of cancellation for non-payment of premium prior to the effective date of the policy. Because the policy has to be in effect for cancellation to be proper, an insurer may make the cancellation date the same date as the renewal or after. At no time may an insurer cancel a policy prior to the renewal policys effective date.
An insured has an automobile insurance policy with a renewal date of December 18, 2000. On October 29, 2000, the insurer sent a bill demanding payment of the renewal premium. The insured failed to make the payment by the due date of November 18, 2000. On November 25, 2000, the insurer sent the insured a cancellation notice, giving the insured at least fifteen (15) days to pay the renewal premium. The effective date of the cancellation was December 18, 2000, same as the renewal policys effective date.
N.Y. Ins. Law § 3425(McKinney 2000), which governs the personal automobile insurance policy in question, does not prohibit an insurer from demanding payment of a renewal premium prior to the renewal policys effective date by advancing the due date of that renewal premium in accordance with the companys rules. Further, N.Y. Ins. Law §3425 does not prevent an insurer from sending a notice of cancellation for nonpayment of premium prior to the renewal date when, as is the case here, an insured fails to pay the premium by the due date. Specifically, N.Y. Ins. Law §3425(a)(10) (McKinney 2000) defines nonpayment of premium as " 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." In addition, N.Y. Veh. & Traf. Law §313(1)(a)(McKinney 1996), which applies to both commercial and non-commercial automobile policies, requires that an insured be given fifteen (15) days notice of cancellation if the basis for the cancellation is nonpayment of premium.
N.Y. Veh. & Traf. Law §313(1)(a) (McKinney 1996) states in relevant part:
No contract for 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.
Under N.Y. Ins. Law §3425(a)(10)(McKinney 2000), there is a fifteen-day "grace period" during which the insured may pay the premium. Based on the facts outlined above, the insured was given at least fifteen days before the cancellation became effective, but failed to pay the premium during the grace period.
However, while an insurer may make cancellation effective on or after the renewal policys effective date, it may not cancel the renewal policy prior to the renewal date. Based on a practical application of §3425 (as well as §3426 for commercial purposes), cancellation may not take effect prior to the renewal date because, in order to cancel a policy, one must be in effect. Given that the insureds renewal policy was not canceled prior to the renewal date of his policy, his renewal policy was effectively canceled.
For further information you may contact Attorney D. Monica Marsh at the New York City Office.