The Office of General Counsel issued the following opinion on Juy 8, 2003 representing the position of the New York State Insurance Department.
Re: Telephone Sales Transactions and Compliance with N.Y. Ins. Law § 3429 and Regulation 90
Is an insurer that sells non-commercial automobile insurance via the telephone required, pursuant to N.Y. Comp. Codes R. & Regs. tit. 11, Part 218 (2002) (Regulation 90), to provide an applicant that it has denied coverage a written notice of refusal to issue coverage?
An insurer that sells non-commercial automobile insurance via the telephone is required, pursuant to N.Y. Comp. Codes R. & Regs. tit. 11, Part 218 (2002) (Regulation 90), to provide an applicant that it has denied coverage a written notice of refusal to issue coverage.
The inquirer states that a property/casualty insurer writes non-commercial automobile insurance business in New York that is subject to Regulation 90. It conducts telephone sales that involve a consumer calling into the insurers call center to request a quote for automobile insurance. A sales representative will then ask a series of questions to collect the necessary data to process a price quote. If the consumer chooses to purchase the insurance, the representative binds the coverage immediately. An application is produced and mailed to the consumer for review, completion, and signature after the policy has already been bound. If the consumer, during the question set, does not meet the insurers underwriting guidelines, the representative advises the consumer that a policy cannot be quoted and the reason for such decision.
As a preliminary matter, we have assumed that the sales representative referenced above will be a licensed insurance agent or an in-office employee of the insurer who is exempt from the licensing requirements pursuant to N.Y. Ins. Law § 2101(a) (McKinney 2000).
N.Y. Ins. Law § 3429 (McKinney 2000) is the anti-redlining statute in New York. That section provides:
(a)No insurer shall refuse to issue or renew or shall cancel a policy of:
(1)fire insurance or fire and extended coverage insurance, or
(2)automobile insurance subject to section three thousand four hundred twenty-five of this article based solely on the geographical location of the risk within this state. Such prohibition shall not preclude an insurer from refusing to issue or renew or from cancelling such policies based on sound underwriting and actuarial principles reasonably related to actual or anticipated loss experience subject to the applicable provisions of section three thousand four hundred twenty-five of this article.
(b)The superintendent shall by regulation establish procedures with respect to notification to insureds of the insurers specific reason or reasons for refusal to issue or renew or for cancellation of such policy.
Under Section 3429, insurers are prohibited from refusing to issue, renew or cancel policies of fire insurance, fire and extended coverage insurance and automobile insurance that is, subject to N.Y. Ins. Law § 3425, based solely on the geographical location of the risk within the State (redlining). Subsequently, N.Y. Comp. Codes R. & Regs. tit. 11, 218 (2002) (Regulation 90) was promulgated pursuant to subdivision (b) of the foregoing statute to "establish procedures with respect to notification to insureds of the insurers specific reason" for denial or nonrenewal of a policy. The relevant sections are cited below.
N.Y. Comp. Codes R. & Regs. tit. 11, § 218.1 (2002) states the purpose of the Regulation:
The purpose of this Part is to make fire or fire and extended coverage insurance and private passenger automobile insurance readily available in the voluntary market by prohibiting companies from engaging in redlining practices through refusal to issue or renew, or from cancelling policies based on the geographic location of the risk; or by terminating or cancelling contracts or accounts of agents or brokers based on their geographic location or the geographic location of the risks or properties for which coverage is being provided by such producers.
N.Y. Comp. Codes R. & Regs. tit. 11, § 218.3 provides the application and notice requirements:
(a) An insurer or its agent, consistent with its method of marketing, shall furnish an application for insurance, upon request of the applicant or the applicants representative, or upon request of a broker that has an account with the insurer or its agent. An agent or broker shall transmit an application for insurance to the appropriate office of the insurer within five working days after the application is received by such agent or broker from the applicant or the applicants representative.
(b)(1) All notices by an insurer, to new applicants for insurance or to insureds, of refusal to issue, or to nonrenew or to cancel coverage, shall state the specific reason or reasons for such action. A specific reason shall not be an unsupported general statement such as "underwriting judgment".
(2)All notices by an insurer, to new applicants for insurance, which state reasons for refusal to issue, shall be mailed or delivered to the applicant not more than 30 days after the application is received by the agent or broker.
(3)All notices to insureds of reasons for nonrenewal shall be mailed or delivered in compliance with section 3425(d)(1) and section 3426(e) of the Insurance Law.
Section 218.7 delineates, in pertinent part, the reporting requirements:
(a)In order to effectuate this regulation insurers shall, no later than January 1, 1980, maintain records by U.S. postal ZIP code of their agents and brokers in this State and maintain records of all agents and brokers in this State whose contracts or accounts have been terminated on or after August 1, 1979 by U.S. postal ZIP code.
(b)In order to effectuate this regulation insurers shall also maintain by U.S. postal ZIP code a record of:
(1)all policies subject to this regulation issued, renewed, cancelled (other than for nonpayment of premium) or nonrenewed on and after April 1, 1980; and
(2)all applications for insurance subject to this regulation on which the insurer on and after April 1, 1980 refuses to issue an insurance policy. For private passenger automobile insurance the ZIP code used may be that of the address to which premium notices are mailed. For policies with a term of other than one year or no fixed expiration date, renewed means the annual anniversary date.
(c)The information required to be maintained by subdivision (a) and (b) of this section shall be kept current and made available to the Insurance Department upon its request.
The inquirer asks whether, in light of the fact that an entire insurance transaction takes place over the telephone, an insurer must provide a written notice of refusal to an applicant. The inquirer presents three possible answers1 to this question. However, the third option is the correct answer to the question. That option states:
"3. Following the Telephone Sales Process, if the customer is declined, the insurer mails the customer the required Specific Reason Notice and Complaint Notice within 30 days of the completion of the Telephone Sales Process which resulted in the declination."
Our answer to the question presented derives from, among other things, the combined purpose, intent and language of Section 3429 and Regulation 90. Section 3429 was enacted to prevent discrimination by insurers against insureds who reside in certain geographic locations.
As mentioned above, Regulation 90 was promulgated to establish, among other things, procedures regarding notification to insureds when there is a refusal to issue or there is non-renewal of a policy. Specifically, Section 218.3(a) of Regulation 90 requires an insurer to furnish to an applicant, upon request, an application for insurance. If, however, the insurer refuses to issue a policy to an applicant, pursuant to Section 218.3(b)(2), it must mail or deliver to such applicant a written notice of refusal to issue coverage. Such notice must be mailed or delivered to the applicant not more than thirty days after the insurance agent or broker receives the application. The importance of this notice is to, among other things, provide the insured with the specific reason for the denial and to aid the Department in detecting the practice of redlining. Thus, the notices must be in writing and must state the reason for refusal to provide coverage.
Further, Section 218.5 requires that every notice of refusal to issue (and other notices specified therein) must contain, among other things, a statement that advises the recipient of the anti-redlining laws. Section 218.5(a) specifies the following formatting requirements for the complaint notice. It shall be "clearly and prominently set out in bold face type on the front (except that the company name, company representative, company address and company phone number may be stamped, or typed in the appropriate place in the notice), so that it draws the readers attention on all notices of refusal to issue. Consequently, without written notices, insurers will not be able to comply with this disclosure and formatting requirement. A verbal denial would not satisfy the regulatory requirement.
Insurers are also required, pursuant to Section 218.7(b) to maintain records, by US postal ZIP code of all policies that are subject to Regulation 90 and that are issued, renewed, cancelled or non-renewed. In addition, Section 218.7(a) requires insurers to maintain records, by US postal ZIP code of their agents and brokers in the State and those agents and brokers whose contracts have been terminated. Accordingly, due to the language, intent and purpose of the redlining statute and the requirements in Regulation 90, these notices must be in writing. Not only does this conclusion follow logically from the wording of the Regulation but, if reasons for refusal are given orally, it would make it difficult for the Department to detect and prevent redlining.
For further information you may contact Associate Attorney D. Monica Marsh at the New York City Office.
1 The first two alternative answers are as follows:
"1.The Specific Reason Notice and Complaint Notice are only required when a written application is submitted prior to declination by the insurer. Internet applications would be written applications in this case but application information taken over the telephone using the Telephone Sales Process would not.
2.Following the Telephone Sales Process, if the customer is declined, the insurer gives the customer the required Specific Reason Notice and Complaint Notice orally over the telephone."