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

George E. Pataki
Governor

Gregory V. Serio
Superintendent

The Office of General Counsel issued the following informal opinion on November 13, 2002, representing the position of the New York State Insurance Department.

RE; Nonrenewal of Commercial General Liability Policy.

Question Presented:

May an insurer lawfully nonrenew a commercial general liability insurance policy by issuing a notice of nonrenewal for nonreceipt of renewal information (even though the information had not been requested), coupled with a notice of conditional renewal stating "premium may increase by more than 10 percent"?

Conclusion:

No. Such nonrenewal of the policy violates N.Y. Ins. Law §§ 3426(e) and (i) (McKinney 2000).

Facts:

The inquirer is the producer for his client whose commercial general liability insurance policies for approximately the past five or more years have been issued by an insurance company. The inquirer stated that it was standard practice in prior years for the insurer not to request renewal information during the period of coverage but to issue a formal notice for nonrenewal to the inquirer’s client for the reason listed thereon: "nonreceipt of renewal information." The inquirer provided two examples of notices for nonrenewal from prior years. In prior years, the inquirer’s client would provide the renewal information when requested, which request was subsequent to the notice of nonrenewal, and the policy would be renewed. This past year, the insurer issued its notice of nonrenewal on September 24, 2001, containing the same reason, although as of that date the insurer had not requested any renewal information. The insurer also coupled the notice of nonrenewal with a notice of conditional renewal for the reason: "premium may increase by more than 10 percent." No specific premium increase or estimate was set forth.

Subsequent to receiving the notice dated September 24, 2001, the insurer’s agent transmitted to the inquirer a cover letter dated October 18, 2001, indicating it wished to make a renewal quote and that the insured should complete and return the enclosed applications before November 14, 2001. The applications were filled out by the insured and submitted to the agent on approximately November 15, 2001. Notwithstanding the response of the inquirer’s client in providing the renewal information requested, this time the insurer nonrenewed coverage at the end of the policy period (December 2, 2001) without further notice. The result for the inquirer’s client was a gap in insurance coverage and the purchase of insurance at a higher premium from another insurer.

Analysis:

Commercial general liability insurance policies are subject to the nonrenewal and conditional renewal provisions of N.Y. Ins. Law § 3426 (McKinney 2000).

"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 . . . insured. . . indicating the insurer’s intention: (A) not to renew such policy; . . ." N.Y. Ins. Law § 3426(e)(1) (McKinney 2000). N.Y. Ins. Law § 3426(e)(2) (McKinney 2000) further provides that such nonrenewal notice "shall contain the specific reason for nonrenewal…"

In addition, N.Y. Ins. Law § 3426(h) (McKinney 2000) provides that "[e]very notice of nonrenewal issued pursuant to this section shall set forth or be accompanied by the reason for nonrenewal, and any such stated reason shall be valid and effective…" The instant policy, however, was nonrenewed for not providing information, even though the insurer did not first request the renewal information and further, would have required the insured to contact the insurer to clarify exactly what information the insurer desired to receive. Accordingly, the notice was not valid.

Secondly, N.Y. Ins. Law § 3426(e)(2) (McKinney 2000) requires a conditional renewal notice as specified in N. Y. Ins. Law § 3426(e)(1)(B) (McKinney 2000) to:

. . . 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). . .

N.Y. Ins. Law § 3426(e)(2) further mandates that "the permissible range of such estimate. . .shall not exceed five percent of the actual amount. . ."

The statute plainly requires that the conditional renewal notice set forth the amount of any premium increase or a reasonable estimate of the premium increase if the insurer is unable to determine the actual amount because of the unavailability of information at the time the notice is provided. The statute also provides for the Superintendent to specify by regulation the permissible range of the estimate up to a limit of five percent. Since there is no regulation governing the permissible range, however, the statute established the upper limit of the range at five percent. Thus, the conditional notice must set forth either the actual amount of the premium increase or provide an estimate of the premium increase within a range of five percent.

Consistent with N.Y. Ins. Law § 3426(e)(2) (McKinney 2000), Department Circular Letter No. 14 (1986) provides as follows with respect to the handling of premium increases in conditional renewal notices:

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 a (sic) 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.

The Circular Letter also noted that "[a] primary objective of [Section 3426] is to maximize understanding and information between insurers and insureds."

Given the plain language of N. Y. Ins. Law § 3426(e)(2) (McKinney 2000) and the above objective, a conditional renewal notice that merely states that the "premium may increase by more than 10 percent" is impermissible.

N.Y. Ins. Law § 3426(i) (McKinney 2000) provides: "No cancellation, conditional renewal or nonrenewal notice that fails to include a provision required by this section shall be an effective notice for purposes of this section."

Since the insurer did not provide a premium quote as part of the purported conditional renewal, the notice was ineffective. N.Y. Ins. Law § 3426(i) (McKinney 2000).

Even if the notice had been otherwise proper, the notice is problematic in that it states that the policy will be nonrenewed and it also states that there will be a conditional renewal. The notice set up two contrary and mutually exclusive actions regarding nonrenewal and conditional renewal.

In addition, more than three weeks after issuing the purported notice of nonrenewal and conditional renewal, the company’s agent indicated that the renewal policy premium amount could be quoted to the insured merely by completing the new application. N.Y. Ins. Law § 3426(a)(4) (McKinney 2000) defines "renewal" as the issuance or offer to issue by an insurer of a policy superceding a policy previously issued and delivered by the same insurer…" (emphasis added).

The insurer failed to properly inform the insured as to what action the insurer intended. The insurer cannot both renew and nonrenew or conditionally renew and nonrenew a policy. The notice provisions and statutes must be literally complied with and any ambiguities in language are construed against the insurer. Pallotta v. Physicians’ Reciprocal Insurers, 137 Misc. 2d 223, 520 NYS 2d 105 (Sup. Ct. 1987). Therefore, the notice is ineffective to nonrenew or conditionally renew the policy.

For further information you may contact Associate Attorney Jeffrey A. Stonehill at the New York City Office.