The Office of General Counsel issued the following opinion on September 18, 2003, representing the position of the New York State Insurance Department.
Re: Three-Year Policy Renewed as One-Year Policy & Necessity of Conditional Renewal Notice
Must an insurer send the policyholder of its three-year businessowners insurance policy a conditional renewal notice if the insurer intends to renew such policy for a one-year term with an annual premium that is more than 10% greater than the annual premium installment payments of the expiring three-year policy, but significantly less than the total premium of such three-year policy?
Yes. By renewing the policy for a one-year term, and increasing the annualized premium payment for such policy, the insurer has reduced the policys coverage, and increased the policys premium. Therefore, the insurer must send the policyholder a conditional renewal notice that informs the policyholder of: (1) the term reduction, and (2) the insurers effective increase of the renewal policys premium.
Without sending conditional renewal notices to its policyholders, an insurer is currently renewing its three-year businessowners insurance policies for one-year terms with annual premiums that are more than 10% greater than the annual premium installment payments of the expiring three-year policies, but significantly less than the total premiums of such three-year policies.
For example, the insurer recently renewed a three-year businessowners insurance policy, with a premium of $5,160 paid in annual installments of $1,720, with a one-year businessowners insurance policy, with a premium of $2,590, without sending its policyholder a conditional renewal notice.
The insurers explanation for not sending a conditional renewal notice follows:
We do not have to send out a CRN because the three-year policy is considered like a one-year because we have only issued one policy for the three-year term.
Based on this, the premium actually decreased by almost 50%. I know it sounds strange but this is the way we go about the renewals for the three-year policies to a one-year. I guess the reason for this is because the ITV (insurance to value) increases alone over the past three years would have brought up the premium to this amount.
Notwithstanding the above quotation, any automatic insurance limit increase for the covered periods of the expiring three-year policies would be less than the effective annualized premium increase of the renewal policies.
N.Y. Ins. Law § 3426 was enacted, in part, "[t]o alleviate for the New York State insurance consumer the problem of the unaffordability and unavailability of insurance by . . . affording policyholders minimum notice of non-renewal of policies, reductions in coverage and premium increases." Memorandum of State Executive Department, 1986 N.Y. Laws 2856.
To advance this objective, N.Y. Ins. Law § 3426(e)(1)(B) (McKinney 2000) provides written notice requirements for insurers that condition the renewal of their commercial lines insurance policies, which include businessowners insurance policies, upon different terms, conditions or rates. § 3426(e)(1)(B) states the following:
(e)(1) A covered policy shall remain in full force and effect pursuant to the same terms, conditions and rates unless written notice is mailed or delivered by the insurer to the first-named insured, at the address shown on the policy, and to such insured's authorized agent or broker, indicating the insurer's intention:
. . . .
(B) to condition its renewal upon change of limits, change in type of coverage, reduction of coverage, increased deductible or addition of exclusion, or upon increased premiums in excess of ten percent (exclusive of any premium increase generated as a result of increased exposure units, pursuant to subsection (d) of this section, or as a result of experience rating, loss rating, retrospective rating or audit), except that with respect to an excess liability policy, the insurer may also, consistent with regulations promulgated by the superintendent, condition its renewal upon requirements relating to the underlying coverage, in which event the conditional renewal notice shall be treated as an effective notice of nonrenewal if such requirements are not satisfied as of the later of the expiration date of the policy or sixty days after mailing or delivery of such notice . . . .
Under the presented facts, the insurers decision not to issue conditional renewal notices directly contravenes the plain language of § 3426(e)(1)(B) because the premium for the businessowners insurance policy, calculated on a per year annualized basis, increased approximately fifty percent (i.e., from $1,720 to $2,590).
Accordingly, because the insurer has increased the premiums of the policies by increasing their annualized premiums nearly fifty percent, the insurer must send conditional renewal notices, which conform with the provisions of § 3426(e)(1)(B), to its policyholders to inform them of such changes. Failure to do so will result in the renewal of such policies at the old terms (including their three-year periods) and rates.
For further information you may contact Senior Attorney Kristian Earl Lynch at the New York City Office.