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 opinion on February 7, 2002, representing the position of the New York State Insurance Department.

RE: Automobile Insurance and Discrimination in Underwriting

Questions Presented:

1. May an insurer request information regarding a prospective insured’s disability and information relative to the usage of the vehicle in determining whether to underwrite a risk?

2. May an insurer decline coverage based upon insufficient mileage?

Conclusions:

1. As a general rule, an insurer is free to select risks and make inquiry of matters that it deems material to the risk. Pursuant to N.Y. Ins. Law § 2606(d) (McKinney 2000), if the insurer has established selection criteria on the basis of disability and the insurer can prove that its decision is based upon sound underwriting practices and actuarial principles reasonably related to actual or anticipated loss experience and is not contrary to law, such selection criteria would not violate the New York Insurance Law.

2. Yes. Nothing in the New York Insurance Law prohibits an insurer from declining coverage based upon insufficient mileage.

Facts:

The inquirer submitted an application for automobile insurance to an insurance company. The inquirer explained to the insurer’s representatives that the inquirer was the only driver and that although the inquirer has a nephew and his family living downstairs from the inquirer, they have their own cars and would not be driving the inquirer’s car. The representatives suggested that the inquirer list them on the application as a precaution.

Since the inquirer also listed that the inquirer is retired/disabled, the insurer requested a copy of the inquirer’s personal medical disability records. In response, the inquirer forwarded a copy of the inquirer’s social security award letter describing the disability. The insurer also asked for a copy of the inquirer’s letter of permanent disability from the inquirer’s private physician stating that the inquirer is suffering from lumbar spinal stenosis and sciatica of the lower back, which the inquirer also forwarded for its review. It further requested a copy of the inquirer’s inspection stickers, depicting the annual mileage on the inquirer’s vehicle. The inquirer sent it inspection stickers for the past three years.

The insurer then declined the inquirer’s application for automobile insurance because, according to its company guidelines, the mileage on the vehicle indicated insufficient usage. The mileage on the inquirer’s vehicle was approximately 3000 miles per year as the inquirer had surgery which prevented the inquirer from driving for a number of months over the last three years. The inquirer believes that the insurer selectively discriminated against the inquirer by requesting personal and confidential information during the application process.

Analysis:

The general rule in this state is that an insurer is free to select risks and make inquiry of matters that it deems material to the risk. See Vander Veer v. Continental Ins. Co., 34 N.Y.2d 50, 52 (1974); Health Ins. Ass’n v. Corcoran, 154 A.D.2d 61, 67 (3rd Dept.1990).

However, N.Y. Ins. Law § 2606(b)(2) (McKinney 2000) expressly prohibits an insurer from refusing to issue, renew or sell a policy solely on the basis of the applicant’s disability. N.Y. Ins. Law § 2606(d) (McKinney 2000) further provides, among other things, that an insurer may nevertheless establish "selection criteria on the basis of disability where the insurer can prove that its decision is based on sound underwriting and actuarial principles reasonably related to actual or anticipated loss experience." Section 2606(d) also requires insurers to notify the insured of the specific reason or reasons for its decision.1See also N.Y. Ins. Law § 3434 (McKinney 2000).

In the present case, the insurance company requested information regarding the inquirer’s disability and the usage of the inquirer’s vehicle. The insurer subsequently provided a denial letter, which explained that it declined coverage because, pursuant to its underwriting guidelines, there is insufficient mileage on the inquirer’s vehicle. It is unclear whether the selection criteria relates to the inquirer’s disability, or was part of the insurer’s general underwriting criteria. However, pursuant to N.Y. Ins. Law § 2606(d)(McKinney 2000), if the selection criteria established by the insurer is based on disability and the insurer can prove that its decision is based upon sound underwriting practices and actuarial principles reasonably related to actual or anticipated loss experience and is not contrary to law, such selection criteria would not violate the New York Insurance Law.

With respect to the inquirer’s second question, nothing in the New York Insurance Law prohibits an insurer from declining coverage based upon insufficient mileage.

For further information, you may contact Attorney Pascale Joasil at the New York City office.


1N.Y. Ins. Law § 2606(e) (McKinney 2000) provides that "if it can be proven that the provisions of subsection (d) of this section are inadequate to address such actual or anticipated loss experience, the prohibition of subsection (b) of this section shall not preclude an insurer from establishing selection criteria on the basis of disability. . . ."