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

The Office of General Counsel issued the following informal opinion on January 25, 2001, representing the position of the New York State Insurance Department.

RE: Commercial Lines/Late Conditional Renewals Insurance Law Section 3426

Question Presented:

What is the statutory effect on the rights of parties in a situation where the insurer sends out a conditional renewal notice (calling for a premium increase of more than 10%) less than 60 days prior to the policy renewal date but prior to that renewal date. Under the circumstances stated, would coverage remain in effect for a period of 60 days at the lower of the current rate or the rate being offered for renewal?

Conclusion:

It depends. If the conditional renewal notice was sent at least 30 days prior to the policy renewal date (but less that 60 days prior to the renewal date) then the terms, conditions and rates set forth in the conditional renewal notice would apply as of the policy renewal date, if the insured chose to renew. If the conditional renewal notice was sent out less than 30 days prior to the policy renewal date (but prior to the renewal date) then the coverage would continue until 60 days after mailing of the notice at the lower of the current rate or the rate being offered for renewal.

Facts:

A letter received by the Insurance Department stated as follows:

…a policy is to renew on March 1, 2001. The insurer sends out a late conditional renewal notice on February 27, 2001, indicating a premium increase of more than ten percent and also extending the notice period sixty days to April 28, 2001, during which time the lower premium would be applicable. It is our understanding that if the renewal is accepted by the insured, the insurer would apply the lower prorated premium for the period commencing March 1, to April 28, and the higher prorated premium from April 28, 2001, until the expiration of the policy period, i.e., March 1, 2002.

ANALYSIS:

N.Y. Ins. Law §3426(e)(1)(McKinney 2000) states as follows:

A covered policy shall remain in full force and effect pursuant to the same terms, conditions and rates unless written notice is mailed or delivered by the insurer to the first-named insured, at the address shown on the policy, and to such insured's authorized agent or broker, indicating the insurer's intention…

The statute goes on to state the alternatives to automatic renewal of a covered policy. Subparagraph (B) relates to the situation presented in the letter. The insurer may send written notice that it intends "…to condition its renewal….upon increased premiums in excess of ten percent…." N.Y. Ins. Law § 3426(e)(1)(B) (McKinney 2000).

Paragraph (e)(3) establishes the time frame for effective notice. It reads, in relevant part, as follows:

The notice required by paragraph one of this subsection shall be mailed or delivered at least sixty, but not more than one hundred twenty, days in advance of the expiration date of the policy….

Subparagraphs (B) and item (i) of subparagraph (C) of N.Y. Ins. Law §3426(e)(5) (McKinney 2000) establish the procedures to be followed in instances where the insurer delivers a notice of conditional renewal outside of the permissible time frame. The subparagraphs read as follows:

(B) In the event that a late conditional renewal notice or a late non-renewal notice is provided by the insurer prior to the expiration date of the policy, coverage shall remain in effect, at the same terms and conditions of the expiring policy and at the lower of the current rates or the prior period's rates, until sixty days after such notice is mailed or delivered, except to the extent that, prior thereto, the insured has replaced the coverage or elects to cancel, in which event such cancellation shall be on a pro rata premium basis; provided, however, that if the insured elects to renew on the basis of the conditional renewal notice, then such terms, conditions and rates shall govern the policy upon expiration of such sixty day period unless such notice was provided at least thirty days prior to the expiration date of the policy, in which event the terms, conditions and rates set forth in the conditional renewal notice shall apply as of the renewal date.

(C)(i) In the event that a late conditional renewal notice or a late non-renewal notice is provided by the insurer on or after the expiration date of the policy, coverage shall remain in effect on the same terms and conditions of the expiring policy for another required policy period, and at the lower of the current rates or the prior period's rates unless the insured during the additional required policy period has replaced the coverage or elects to cancel, in which event such cancellation shall be on a pro rata premium basis.

The situation described in the letter stated that the insurer sent out a conditional renewal notice on February 27, 2001 on a policy with a renewal date of March 1, 2001. Assuming effective mailing or delivery took place on February 27th, notice was effectuated 4 days prior to the policy renewal date. By the terms of the statute "…coverage shall remain in effect, at the same terms and conditions of the expiring policy and at the lower of the current rates or the prior period's rates, until sixty days after such notice is mailed or delivered, except to the extent that, prior thereto, the insured has replaced the coverage or elects to cancel, in which event such cancellation shall be on a pro rata premium basis…" N.Y. Ins. Law§ 3426(e)(5)(B) (McKinney 2000).

For further information you may contact Associate Attorney Sam Wachtel.