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 June 21, 2002, representing the position of the New York State Insurance Department.

RE: Construction of N.Y. Ins. Law § 3425(j)(1)(A).

Questions Presented:

1. Under N.Y. Ins. Law § 3425(j)(1)(A) (McKinney Supp. 2002) (hereinafter "Section 3425(j)(1)(A)"), if the insurer were to terminate its agent in the first year of the three year required policy period of a personal lines insurance policy (hereinafter "policy"), must the insurer offer to the insured the option to renew at least the policy's second year through the terminated insurance agent?

2. If the insured were to request that the insurer renew the policy through the terminated agent for the third year of the three year required policy period, must the insurer renew the policy's third year through the terminated agent?

Conclusions:

1. Yes. If the insurer were to terminate its agent in the policy's first year of the three year required policy period, the insurer must offer to the insured the option to renew the policy through the terminated agent for at least the policy's second year.

2. Yes. If the insured were to request that the insurer renew the policy's third year of the three year required policy period through the terminated agent, then the insurer must renew the policy's third year through the terminated agent.

Facts:

A personal lines insurance policy is in the first year of a three year required policy period when the insurer terminates its agent. The insured does not request that the insurer offer to continue the policy through the terminated insurance agent. It is not clear whether the insured rejects the insurer's offer to renew the policy through the terminated agent for the policy's second year or whether the insured does not request that the insurer offer to renew the policy's third year through the terminated agent.

For the purpose of this opinion, three facts must be assumed for Section 3425(j)(1)(A) to apply to the agent's termination. First, the policy is not otherwise cancelled or nonrenewed in accordance with the provisions of N.Y. Ins. Law § 3425 (McKinney Supp. 2002). Second, the contract between the insurer and the terminated agent does not provide greater rights to the terminated agent as to ownership of the renewals than under Section 3425(j)(1)(A). Third, N.Y. Ins. Law § 3425(j)(2) (McKinney Supp. 2002) does not apply to the terminated agent. That provision states:

(2) This subsection shall not apply to an agent who agrees to represent exclusively one insurer or a group of insurers under common management or an agent or broker whose license has been revoked by the superintendent or whose contract or account has been terminated for insolvency, abandonment, gross and willful misconduct, or failure to pay over to the insurer moneys due to the insurer after receipt of a written demand therefor.

This opinion provides guidance concerning only as to what is required and what is permitted by Section 3425(j)(1)(A) when the insurer terminates its agent in the first year of the three year required policy period.

Analysis:

Section 3425(j)(1)(A) regulates the insurer's duty associated with the termination of its agent who sells a personal lines insurance policy, as defined in N.Y. Ins. Law § 3425(a) (McKinney Supp. 2002). Section 3425(j)(1)(A) states:

(j)(1) Where an insurer or an agent who is authorized by such insurer to

accept lines of insurance from licensed agents or brokers notifies a licensed agent or broker that its contract or account shall be terminated:

(A) with respect to a personal lines insurance policy required to be continued by this section, the insurer shall offer to continue the policy for any remaining part of the required policy period and any statutory extension and the insurer shall offer to continue the policy through the terminated agent or broker for at least its next one year policy period which commences within one year following the date of mailing or delivery to the terminated agent or broker of written notice of termination of such contract or account, and thereafter, at the specific request of the insured, shall offer to continue the policy through such terminated agent or broker for any remaining part of the required policy period including statutory extension . . . .

Under the facts provided, the insurer has a duty to make an offer to the insured to renew at least the policy's second year of the three year required policy period through the terminated agent. If the insured were to request that the insurer renew the policy's third year of the three year required policy period through the terminated agent, then the insurer must also renew the policy's third year through the terminated agent. However, if the insured does not request that the insurer renew the policy's third year through the terminated agent, the insurer may renew the policy through the new agent for the policy's third year, or if one has not been designated, write the policy directly for the third year.

For further information, you may contact Senior Attorney Robert Freedman at the New York City office.