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 informal opinion on May 10, 2002, representing the position of the New York State Insurance Department.

Re: Non-commercial Pet Insurance

Questions Presented:

1. Is non-commercial pet insurance considered "personal lines" insurance and therefore subject to the three-year required policy period under N.Y. Ins. Law § 3425(a)(7) (McKinney Supp. 2001-2002)?

2. Does a material change in the covered pet’s health constitute a physical change in the property, pursuant to N.Y. Ins. Law § 3425(c)(2)(E) (McKinney Supp. 2001-2002), as a ground for cancellation or non-renewal of the policy?

Conclusions:

1. Yes. Non-commercial pet insurance is considered "personal lines" insurance and therefore is subject to the three-year required policy period under section 3425(a)(7) of the Insurance Law.

2. A material change in the covered pet’s health does not constitute a physical change in the property as a ground for cancellation of the policy. However, if a pet develops a condition during the term of the policy that the insurer considers as being "uninsurable in accordance with the insurer’s objective, uniformly applied underwriting standards," and the policy specifically excludes that condition, it could be considered to be a physical change pursuant to section 3425(c)(2)(E), and therefore a ground for cancellation of the policy.

Facts:

No additional facts were given.

Analysis:

An insurance agency only sells non-commercial animal (pet) insurance, which is therefore covered under section 3425 of the Insurance Law, as opposed to animal insurance which is used in the conduct of business, which is covered under section 3426 of the Insurance Law.

N.Y. Ins. Law § 3425(a)(2) states, in relevant part:

"Covered policy" also means a contract of insurance, referred to in this section as "personal lines insurance", other than a contract of insurance defined in paragraph one hereof, issued or issued for delivery in this state, on a risk located or resident in this state, insuring any of the following contingencies:

(B) loss of or damage to personal property in which natural persons have an insurable interest, except personal property used in the conduct of a business; . . .

N.Y. Ins. Law § 3425(a)(7) states:

With respect to personal lines insurance, "required policy period" means a period of three years from the date as of which a covered policy is first issued or is voluntarily renewed.

Therefore, the required policy period for the non-commercial pet insurance that the agency sells is three years. The three-year required policy period is presently in effect, and by issuing one-year policies to New York residents, the insurer is in violation of the Insurance Law. An insurer, however, may issue one-year policies but is bound to continue the coverage for the entire three-year period. Thus, an insurer must renew the one-year policy for three years.

The inquirer also asks what would constitute a physical change in the property as a ground for cancellation or non-renewal of the policy and if a material change in the pet’s health is consistent with this rule.

N.Y. Ins. Law § 3425(c)(2)(E) (McKinney Supp. 2001-2002) states:

(c) After a covered policy has been in effect for sixty days, or upon the effective date if the policy is a renewal, no notice of cancellation shall be issued to become effective unless required pursuant to a program approved by the superintendent as necessary because a continuation of the present premium volume would be hazardous to the interests of policyholders of the insurer, its creditors or the public, or unless it is based on one or more of the following:

(2) With respect to personal lines insurance policies:

(E) physical changes in the property insured occurring after issuance or last annual anniversary date of the policy which result in the property becoming uninsurable in accordance with the insurer’s objective, uniformly applied underwriting standards in effect at the time the policy was issued or last voluntarily renewed; . . .

It is this Department’s view that the insurer may not cancel a policy when a pet becomes seriously ill from a condition covered under the policy, since this is the very risk that the insurer is insuring against. Thus, an event that is supposed to be covered under the policy, such as a serious injury or illness, cannot then be considered a physical change in the property and uninsurable.

However, if a pet develops a condition during the term of the policy that the insurer considers as being "uninsurable in accordance with the insurer’s objective, uniformly applied underwriting standards," and the policy specifically excludes that condition, it could be considered to be a physical change pursuant to section 3425(c)(2)(E), and therefore a ground for cancellation of the policy.

In addition, after the three-year policy period, an insurer may non-renew the policy for any reason, as long as it is not violating the Insurance Law and is consistent with the insurer’s underwriting guidelines.

For further information, you may contact Senior Attorney Meredith S. Kaufer at the New York City Office.