New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

George E. Pataki
Governor

Gregory V. Serio
Superintendent

The Office of General Counsel issued the following opinion on April 19, 2004 representing the position of the New York State Insurance Department.

Re: Audit premium applicable to a covered policy as defined by N.Y. Ins. Law § 3426

Questions Presented

(1) On a covered policy subject to N.Y. Ins. Law § 3426 (McKinney Supp. 2004), may an insurer apply a quarterly installment premium for the current policy year to an outstanding owed audit premium on the prior year's policy?

(2) On a policy subject to N.Y. Ins. Law § 3426 (McKinney Supp. 2004), may an insurer cancel a current policy for nonpayment of premium when the nonpayment relates to an audit premium on the prior year's policy?

Conclusions

(1) No. Because the insurer has renewed the policy, the insured is entitled to coverage for the current policy year and the insurer may not apply the payment of a quarterly renewal premium for the current policy year to payment of an audit premium on the prior year's policy.

(2) No. Failure to pay a premium amount due as the result of an audit on a prior policy period is not nonpayment of premium under N.Y. Ins. Law § 3426 (McKinney Supp. 2004), which prohibits insurers from canceling commercial lines policies mid-term except for specified reasons indicated therein, and may not result in the cancellation of the current policy.

Facts

None presented.

Analysis

N.Y. Ins. Law § 3426(c)(1)(A) (McKinney Supp. 2004) states:

(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 insured's authorized agent or broker, and such cancellation is based on one or more of the following:

(1) With respect to covered policies:

(A) nonpayment of premium;

N.Y. Ins. Law § 3426(a)(3) (McKinney Supp. 2004) states:

(3) "Nonpayment of premium" means the failure of the named insured to discharge any obligation in connection with the payment of premiums on a policy of insurance or any installment of such premium, whether the premium is payable directly to the insurer or its agent, or indirectly under any premium finance plan or extension of credit. Payment to the insurer, or to an agent or broker authorized to receive such payment, shall be timely for the purpose of this section if made within fifteen days after the mailing to the insured of a notice of cancellation for nonpayment of premium.

Because the insurer has renewed the policy, the insured is entitled to coverage for the current policy year and the insurer may not apply the payment of a quarterly renewal premium for the current policy year to payment of an audit premium on the prior year's policy since the payment was tendered for the current premium year.

In response to the inquirer’s second question, see also a March 15, 2002 letter by Jeffrey Stonehill, which is also available on the Department's website.

For further information one may contact Senior Attorney Robert Freedman at the New York City Office.