The Office of General Counsel issued the following opinion on August 6, 2002, representing the position of the New York State Insurance Department.
Re: Cancellation of Commercial Risk Insurance Policies.
Are the commercial risk insurance advance notice of cancellation provisions contained in N.Y. Ins. Law § 3426 (McKinney 2000) mandatory, or does the statute establish minimum advance notice requirements that can be increased and incorporated into an insurance policy?
The statutory cancellation notice provisions contained in N.Y. Ins. Law § 3426(b) and (c) establish mandatory minimum advance notice requirements for cancellation of a commercial risk insurance policy. An insurer could, but is not required to, agree to increase the amount of advance notice of cancellation that must be given to the first-named insured in order to effectuate a cancellation of the insurance policy.
Mr. A states that an issue has arisen with respect to commercial insurance cancellation requirements in connection with an insurance policy provided by one of his companys borrowers under a HUD-insured loan on a multi-family housing project in New York State. The insurance broker or agent for the project informed Mr. A that New York law prohibits an insurance company from providing greater notice of policy cancellation than that notice described in the New York endorsement to the insurance policy, IL 02 68 09 95, entitled "New York Changes Cancellation and Nonrenewal. The broker or agent has taken the position that he could not amend the policy to increase the notice for cancellation to 30 days.
Mr. A faxed the Department a copy of the Insurance Services Office (ISO) endorsement of which he inquired. As to policy cancellation it provides, in pertinent part, as follows:
A. Paragraphs 1,2, 3, and 5, of the CANCELLATION Common Policy Condition are replaced by the following:
* * *
(2) CANCELLATION OF POLICIES IN EFFECT:
a. 60 DAYS OR LESS
We may cancel this policy by mailing or delivering to the first Named Insured written notice of cancellation at least:
(1) 30 days before the effective date of cancellation if we cancel f or any reason not included in paragraph A.2.a.(2) below,
(2) 15 days before the effective date of cancellation if we cancel for any of the following reasons:
[The statutory grounds for cancellation contained in § 3426(c) are restated here]
b. FOR MORE THAN 60 DAYS
If this policy has been in effect for more than 60 days, or if this policy is a renewal or continuation of a policy we issued, we may cancel only for any of the reasons listed in paragraph A.2.a.(2) above, provided we mail the first Named Insured written notice at least 15 days before the effective date of cancellation.
For purposes of this response we are assuming, based upon Mr. As submissions, that the insurance about which he is inquiring constitutes "commercial risk insurance" as that term is defined in N.Y. Ins. Law § 107(a)(47) (McKinney Supp. 2002). It provides, as follows:
(47) Commercial risk insurance means insurance not subject to section three thousand four hundred twenty-five of this chapter issued or issued for delivery in this state, on a risk located in this state, insuring any of the following contingencies:
(A) loss of or damage to real property;
(B) loss of or damage to personal property;
(C) losses or liabilities arising out of the ownership, operation or use of a motor vehicle;
(D) liabilities of persons acting as officers or directors; or
(E) other liabilities, including product liability, for loss of, damage to, or injury to persons or property.
N.Y. Ins. Law § 3426(b) and (c) (McKinney 2000) provide as to the cancellation of covered policies of commercial risk insurance, as follows:
(b) During the first sixty days a covered policy is initially in effect, except for the bases for cancellation set forth in paragraph one, two or three of subsection (c) of this section, no cancellation shall become effective until twenty days after written notice is mailed or delivered to the first-named insured at the mailing address shown in the policy and to such insureds authorized agent or broker.
(c) After a covered policy has been in effect for sixty days unless cancelled pursuant to subsection (b) of this section, or on or after the effective date if such policy is a renewal, no notice of cancellation shall become effective until fifteen days after written notice is mailed or delivered to the first-named insured and to such insureds authorized agent or broker, and such cancellation is based on one or more of the following:
[subparagraphs (1)-(3) set forth the statutory grounds for the cancellation of covered policies]
Thus, the Insurance Law requires specific procedures to be followed in order to cancel a covered policy of commercial risk insurance. During the first 60 days a policy is initially in effect, except if the policy is being cancelled based upon a ground other than those specified in § 3426(c)(1)-(3), written notice must be mailed or delivered to the first-named insured and the insureds authorized agent or broker at the address shown on the policy (paragraph (5)) at least 20 days before the cancellation becomes effective. After the first 60 days a policy is in effect or upon renewal, written notice must be mailed or delivered to the first named insured as well as to the insureds insurance agent or broker at least 15 days before the cancellation becomes effective.
The Department has interpreted these statutory advance notice requirements as being minimum requirements. This is in line with Subsection (m) of § 3426 that provides, in pertinent part, as follows:
(m) Nothing in this section shall be construed to prohibit an insurer from providing terms more favorable to an insured or other party in interest with regard to cancellation, nonrenewal or conditional renewal;
If a covered policy under the statute provided for a longer period of advance notice of cancellation of the policy, this would be a term more favorable to the insured because it would give the insured more time to obtain alternate insurance, and therefore would be permissible. While an insurer can extend the time for the giving of advance notice of cancellation, it does not have to do so.
I point out, however, that the ISO endorsement that Mr. A sent to us provides for a longer advance notice period than the 20 day minimum required by the statute, as to policies in effect for 60 days or less that are cancelled on grounds other than those specified in the statute the endorsement requires at least 30 days advance notice. As to cancellations of policies in effect for 60 days or less that are based upon one of the statutory grounds, as well as for cancellations of policies in effect for more than 60 days or policies that have been renewed, the endorsement does not extend the statutory minimum required advance notice period beyond 15 days.
For further information, you may contact Associate Attorney Barbara A. Kluger at the New York City office.