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 opinion on November 14, 2002, representing the position of the New York State Insurance Department.

Homeowner Environmental Protection Insurance Policy

Question Presented:

May a homeowner’s environmental protection insurance policy that constitutes a covered policy of personal lines insurance under N.Y. Ins. Law § 3425(a)(2) (McKinney Supp. 2002) be written as special risk insurance under Article 63 of the New York Insurance Law (Free Trade Zone)?

Response:

No. An environmental protection insurance policy written to a homeowner who is a natural person that constitutes a covered policy of personal lines insurance under N.Y. Ins. Law § 3425(a)(2) may not be written in the Free Trade Zone, and thus is not excepted from New York filing requirements. Such a policy does not constitute a Class 2 risk.

Facts:

The inquirer forwarded to the Department with his letter a copy of an Insurance Company A renewal policy entitled, "Home Environmental Protection Insurance Policy" that was issued to a natural person who is an individual homeowner in New York State for the policy period April 30, 2002-April 30, 2003. The cancellation endorsement that the inquirer also forwarded to the Department refers to the policy as "Homeowner Environmental Protection Insurance Policy" and the policy itself states that it provides coverage to the spouse of the named insured, "…if a resident of the same household". The declarations page contains the following notice: "These policy forms and the applicable rate are exempt from the filing requirements of the New York State Insurance Department. However, such forms and rate must meet with the minimum standards of the New York Insurance Law and Regulations." This notice indicates that the policy was purportedly written as a special insurance risk under Article 63 in the Free Trade Zone. Attached to the declarations page is a cancellation endorsement that appears to have effected a cancellation of the policy renewal, agreed to by the insurer and insured, to its inception date.

The policy provided the named insured with coverage for liability for cleanup costs required by a governmental authority and caused by a defect and resulting in a release from an underground storage tank. To be covered, the defect and resulting release had to be visually inspected and confirmed, and the cleanup must have been performed by Insurance Company A’s approved contractor. The policy explicitly excluded, among other things, claims against the insured or cleanup costs to property not owned by the insured.

Analysis:

Article 63 of the N.Y. Ins. Law (McKinney 2000) addresses insurance filing exemptions for special risks in what is commonly referred to as the Free Trade Zone. N.Y. Ins. Law § 6301(b) enumerates which kinds of insurance for which the filing exemption does not apply but also gives the Superintendent the authority to include some risks on a list maintained by the Superintendent for which the filing exemption does apply. The statute provides, as follows:

(b) No exemption pursuant to subsection (a) hereof shall be permitted in relation to the kinds of insurance set forth in paragraph one, two, three, fifteen, eighteen or twenty-three of subsection (a) of section one thousand one hundred thirteen of this chapter, or to coverage for personal lines to natural persons for non-business purposes. However, any risk pursuant to paragraph one, two or three of such subsection of such section of this chapter or personal lines risk (except private passenger, non-fleet automobile insurance) shall be exempt pursuant to subsection (a) hereof if it is included by the superintendent on the list maintained by him pursuant to subsection (a) of section six thousand three hundred three of this article [Class 2 risk]. [Emphasis added]

Part 16.8(c) of Regulation 86 contains the following operational requirement:

(c) Covered policies as defined in section 3425(a)(1) and (2) of the Insurance Law shall not be written as class 1 or class 2 risks.

It appears that the homeowner’s environmental protection insurance policy that the inquirer sent to the Department is a covered policy of personal lines insurance within the meaning of N.Y. Ins. Law § 3425(a)(2). The statute provides, in pertinent part, as follows:

(2) ‘Covered policy’ also means a contract of insurance, referred to as ‘personal lines insurance’, other than a contract of insurance defined in paragraph one hereof [automobile insurance], issued or issued for delivery in this state, on a risk located or resident in this state, insuring any of the following contingencies:

(A) loss of or damage to real property used predominantly for residential purposes and which consists of not more than four dwelling units, other than hotels and motels;

* * *

(C) other liabilities for loss of, damage to, or injury to persons or property, not arising from the conduct of a business, when a natural person is the named insured under the policy. [Emphasis added]

The policy that the inquirer sent to the Department covered a natural person at what appears to be a residential address. The policy itself and the cancellation endorsement in fact refers to the policy as a home or homeowner policy. It provided coverage for first-party cleanup costs, where cleanup is required by a governmental authority and thus, covered damage to real property owned by the named insured.

As stated above, pursuant to Part 16.8(c) of Regulation 86, covered policies of personal lines insurance are specifically excluded from the Free Trade Zone, and therefore, they are not exempted from the filing requirements of the Insurance Law.

For further information you may contact Associate Attorney Barbara Kluger at the New York City Office.