The Office of General Counsel issued the following opinion on June 19, 2003, representing the position of the New York State Insurance Department.
Re: Minimum Earned Premium and Assessment Corporation
May an assessment corporation determine that all of its policies are now subject to a minimum earned premium of $100 upon cancellation, without disclosing this new minimum earned premium to its policyholders either by way of policy declarations or notice to insureds, but simply by a statement in its policy jacket stating that it has the right to assess its policyholders?
Yes. N.Y. Ins. Law § 3428(a) (McKinney 2000) governs earned premiums upon cancellation of insurance contracts and does not state that "notice" must be provided to insureds.
No specific facts were given.
N.Y. Ins. Law § 3428(a) (McKinney 2000) states in relevant part:
[W]henever an insurance contract made or issued in this state is cancelled or otherwise terminated by the insured before the expiration thereof in accordance with the terms of such contract, the earned premium to be retained by the insurer shall be determined by the applicable rate filing, if any, otherwise in accordance with the provisions of such contract.
Thus, in the event of mid-term cancellation by an insured, the amount of premium to be retained by the insurer must be calculated from the applicable rate filing with the Insurance Department, if the insurer has made such a filing or is required to make a rate filing. If no rate filing has been made and it is not stated in the policy, the amount of earned premium to be retained by the insurer is calculated in accordance with the companys manual rating rules.
In this case it is an assessment corporation, which is subject to Article 66 of the Insurance Law, and not subject to Article 23, and is therefore not required to make an Article 23 rate filing with the Insurance Department. However, the assessment corporation must follow its own manual rating rules which cannot conflict with the terms of the policy. Additionally, unless the assessment corporations by-laws permit a minimum earned premium, it would not be permissible for it to charge a minimum earned premium of any amount, without a change to its by-laws.
The inquirer states that the assessment corporation relies on its statement in the policy jacket, which is part of the policy, stating that it has the right to assess its policyholders as notice to its insureds regarding the $100 minimum earned premium. This is incorrect since a minimum earned premium is not considered to be an assessment. However, the Insurance Law does not require notice to insureds regarding the amount of the earned premium due to cancellation of the policy. Therefore, the assessment corporation has not violated the Insurance Law by not giving notice to its insureds.
For further information, you may contact Associate Attorney Meredith S. Kaufer at the New York City Office.