The Office of General Counsel issued the following informal opinion on April 19, 2002, representing the position of the New York State Insurance Department.
Re: Terrorism exclusions in excess line policies
May a terrorism exclusion be included in an insurance policy written on an excess line basis covering property risks located in New York?
There is no general prohibition against a terrorism exclusion in a property risk policy written on an excess line basis but such an exclusion would not be permissible in regard to the peril of fire.
It was a general inquiry and no specific facts were provided. The inquirer asked whether a terrorism exclusion was permissible in a policy written on a "non-admitted" basis, by which the Department assumes that the inquirer means that the policy would be written pursuant to the excess line laws of New York.
Unlike most insurance policy forms for property insurance issued by New York authorized insurers, insurance policy forms for policies issued by unauthorized insurers through a New York licensed excess line broker, in accordance with the provisions of N.Y. Ins. Law § 2105 (McKinney 2000 & Supp. 2001-2002), N.Y. Ins. Law § 2118 (McKinney 2000 & Supp. 2001-2002) and N.Y. Comp. Codes R. & Regs. tit. 11, Part 27 (1999) (Regulation 41), are not approved by the Superintendent of Insurance.
This does not mean that excess line policies may provide any kinds of terms and conditions that the insurer wants since a particular statute or regulation may be applicable to such policies. For example, N.Y. Comp. Codes R. & Regs. tit. 11, § 27.11(a) (1999) of Regulation 41 provides:
(a) No excess line broker shall procure coverage from an unauthorized insurer if such coverage is prohibited by law, including if such coverage:
(1) does not constitute insurance within the meaning of section 1101 or other sections of the Insurance Law;
(2) involves a kind of insurance not authorized under section 1113 or other sections of the Insurance Law;
(3) is not within the scope of section 2105 of the Insurance Law;
(4) is determined by any Appellate Division of the New York State Supreme Court or the New York State Court of Appeals to be against public policy in this State; or
(5) has been otherwise proscribed by law.
The Insurance Law and regulations issued thereunder do not expressly address terrorism exclusions. However, N.Y. Ins. Law § 3404 (McKinney 2000), provides that "[n]o policy or contract of fire insurance shall be made, issued or delivered on any property in this state unless it conforms as to all provisions, stipulations, agreements and conditions with such form of policy " that is set forth in Section 34041. Fire insurance coverage today is not usually provided on a stand-alone fire insurance policy, but rather as part of a multi-peril policy, that provides coverages in combination with other kinds of insurance. In either the stand-alone or multi-peril case, § 3404(f)(1) permits an insurer to deviate from the specific language of the standard fire policy; provided however that, among other things, "(A) the policy contains, with respect to the peril of fire, terms and conditions no less favorable to the insured than those contained in the standard fire policy."
Even though the specific language of the standard fire policy is not mandated, no insurance policy may provide coverage with respect to the peril of fire that is not at least as favorable to the insured as provided in the standard fire policy. Accordingly, in regard to the peril of fire, no insurer may issue a policy on any property in this state containing an exclusion not specifically permitted under § 3404.
A terrorism exclusion is not one of the permissible exclusions that are specified in the standard fire policy and the addition of such exclusion would have the effect of narrowing the coverage otherwise provided under the standard fire policy. Therefore, no policy of fire insurance made, issued or delivered on any property in this state may contain a terrorism exclusion with respect to the peril of fire. Since a policy of insurance procured by an excess line broker in New York is a policy that is made, issued or delivered in this state, § 3404 would apply. Accordingly, no such policy may contain a terrorism exclusion with respect to the peril of fire on any property in this state2.
In regard to perils other than fire, there is nothing in the Insurance Law that specifically restricts or otherwise limits the exclusions that may be contained in a property insurance policy in this regard or that would otherwise require an excess line insurer to provide coverage for damage or loss resulting from acts of terrorism. Hence, absent an amendment to the law or regulations, a terrorism exclusion would be permissible in an excess line policy in regard to perils other than fire.
While the inquiry relates only to property insurance risks written by excess line insurers, there are certain statutorily mandated coverages, such as certain types of motor vehicle insurance (including statutory automobile liability, no-fault insurance and uninsured motorist coverage) and workers compensation insurance, where a terrorism exclusion would not be permitted nor should this opinion be construed to limit the Superintendent's authority to determine that such an exclusion would be misleading or against public policy.
For further information you may contact Principal Attorney Paul Zuckerman at the New York City Office.
1The one exception is for a policy issued pursuant to N.Y. Ins. Law § 3102 (McKinney 2000), which mandates the use of readable and understandable insurance policies. Such policies are nonetheless required to comply with § 3404(f)(1), discussed below.
2In all respects in which a provision of an insurance policy violates the requirements or prohibitions of the Insurance Law, the policy is enforceable as if it conformed to such requirements or prohibitions. See N.Y. Ins. Law § 3103 (McKinney 2000); Bersani v. General Accident Fire & Life Assurance Corp., 36 N.Y.2d 457, N.Y.S.2d 108 (1975).