The Office of General Counsel issued the following opinion on March 2, 2004, representing the position of the New York State Insurance Department.
Re: Endorsements for Commercial Liability Insurance Policies
1. Did the Department approve the endorsement described in the facts portion of this opinion?
2. Is the language of the endorsement ambiguous?
3. May an insurer, without providing notice to the insured, add an endorsement that changes the coverage under a commercial liability insurance policy and increases the premium?
1. Yes. The Department approved this endorsement.
2. No. The language of the endorsement does not appear to be ambiguous.
3. No. An insurer may not add such an endorsement without complying with the written notice requirements contained in N.Y. Ins. Law § 3426 (McKinney 2000 and Supp. 2004) concerning conditional renewals.
An insurer added an endorsement to a commercial liability insurance policy that was issued to a contractor. The endorsement is an exclusion of liability coverage for damage stemming from "roofing operations" and provides that "This insurance does not apply to bodily injury or property damage arising out of any roofing operations which involve the replacement of any roof or the recovering of an existing roof."
Questions No. 1 & 2
The Insurance Law and its corresponding regulations do not provide any mandatory minimum language or coverage requirements for this type of endorsement. The Superintendent reviews and approves policy form language pursuant to N.Y. Ins. Law § 2307(b) (McKinney 2000 and Supp. 2004), and may disapprove a policy form if it is misleading or violative of public policy. That Section provides, in relevant part, as follows:
(b) Except as otherwise provided herein, no policy form shall be delivered or issued for delivery unless it has been filed with the superintendent and either he has approved it, or thirty days have elapsed and he has not disapproved it as misleading or violative of public policy. . . .
The Department approved the subject endorsement on March 17, 1999, in accordance with Section 2307. Since the endorsement and policy form was intended to provide coverage to general contractors, it is not misleading or violative of public policy. However, if the endorsement had been extended to a contractor who is primarily engaged in roofing operations, coverage would have been illusory and therefore misleading. Additionally, the endorsement does not appear to be ambiguous, as it clearly describes the activity for which there will be no coverage.
Question No. 3
N.Y. Ins. Law § 3426(e)(1)(B) (McKinney 2000 and Supp. 2004) applies to commercial lines insurance and provides as follows:
(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 . . . .
In the present case, the insurer must provide a conditional renewal notice because there is a reduction in coverage under a commercial liability insurance policy. Moreover, a conditional renewal notice would be required if there is an increase in the premium that is in excess of ten percent, exclusive of any premium increase generated as a result of increased exposure units, or as a result of experience rating, loss rating, retrospective rating or audit.
Accordingly, the insurer must comply with the written notice requirements contained in § 3426(e)(1)(B) concerning conditional renewals. Failure to do so will result in the renewal of such policies under the old policy terms, conditions and rates.
For further information you may contact Senior Attorney Pascale Joasil at the New York City Office.