The Office of General Counsel issued the following informal opinion on August 28, 2002 representing the position of the New York State Insurance Department.
Re: Premium Increase Estimate of Conditional Renewal Notice Subject to Section 3426
Is a conditional renewal notice, for an insurance policy subject to N.Y. Ins. Law § 3426(e)(2) (McKinney 2000), valid if it states that the policys premium will increase by an estimated 10% or more over the previous years premium, but does not set forth the amount of the proposed premium?
No. The conditional renewal notice is invalid because it does not set forth (1) the amount of the proposed premium, or (2) a reasonable estimate of the proposed premium within 5% of the actual premium to be charged.
An insured (the "Insured") received a conditional renewal notice dated June 6, 2002 (the "Notice") from its insurer (the "Insurer") that stated in pertinent part: "Your renewal premium will increase 10% or greater over last years premium." The Notice did not set forth a proposed premium or indicate an estimate of the increase within a 5% range.
The premium for the expiring policies, which covered the 2001-2002 period, was $81,957.00. On July 29, 2002, the Insurer faxed the Insured a proposed premium for the renewal policies, covering the 2002-2003 period; the quote was $232,491.00.
As stated in Circular Letter No. 14 (1986), dated August 19, 1986, one of the purposes in the enactment of N.Y. Ins. Law § 3426(e)(2) (McKinney 2000) was to increase the amount of information available to insureds regarding material changes to their policies. Its requirements are as follows:
[A] conditional renewal notice as specified in subparagraph (B) . . . shall contain the specific reason or reasons for . . . conditional renewal, set forth the amount of any premium increase (or, where such amount cannot reasonably be determined as of the time the notice is provided, a reasonable estimate of the premium increase based upon the information available to the insurer at that time), and describe in plain and concise terms the nature of any other proposed changes specified in paragraph one of this subsection. The superintendent shall by regulation specify the permissible range of such estimate (which shall not exceed five percent of the actual amount) and the permissible methods by which an insurer may satisfy the notice requirements of this section.
N.Y. Ins Law § 3426(e)(2) (McKinney 2000).1
The Insurance Department issued Circular Letter No. 14 (1986) to assist insurers implementing the provisions of §3426. It explains in pertinent part:
When a notice of conditional renewal results from rate increases or other factors yielding a premium increase exceeding ten percent (10%), an exact dollar amount difference, precise percentage differential, or side-by-side premium comparison is encouraged. The conditional renewal notice must at least indicate a percentage range within five percent (5%) (e.g., proposed premium increase between 20% and 25%), or set forth the amount of the proposed premium advising the insured that this figure represents a greater than ten percent (10%) premium increase over the previous policy and that the insured should contact its agent or broker, or the company itself, if the insured needs more specific pricing information than apparent from its own records. The basic reasons for the proposed premium increase should also be explained in the conditional renewal notice.
Here, the Notice did not specify the new premium or provide an estimate increase within a five percent range. Merely advising the Insured that the "renewal premium will increase 10% or more over last years premium" does not satisfy the statutory requirement. Accordingly, the Notice is deficient and, thus, invalid.
For further information you may contact Attorney Kristian Earl Lynch at the New York City Office.
1 The Superintendent has not promulgated regulations specifying a permissible range for such estimate or methods to satisfy such notice requirements. Accordingly, the 5% stated in the statute is the maximum range permissible