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 22, 2004, representing the position of the New York State Insurance Department.

Re: Cancellation of homeowners’ insurance policy based upon unoccupied premises

Questions Presented:

1. Where the premises insured under a homeowners’ insurance policy becomes unoccupied and the policy is subsequently renewed, and where the insurer, pursuant to its uniformly applied underwriting standards, would not issue a new homeowners’ policy because the premises were unoccupied, may an insurer cancel the policy mid-term based upon "physical changes in the property insured occurring after issuance or last annual anniversary date of the policy which result in the property becoming uninsurable in accordance with the insurer's objective, uniformly applied underwriting standards in effect at the time the policy was issued or last voluntarily renewed?"

2. Where the premises insured under a homeowners’ insurance policy becomes unoccupied, may an insurer cancel the policy based upon "discovery of willful or reckless acts or omissions increasing the hazard insured against?"

Conclusions:

1. No, under such circumstances, the insurer may not cancel the policy.

2. Whether an insurer may cancel a homeowners' insurance policy for such reason when the property becomes unoccupied would depend on the facts.

Facts:

The premises insured under a policy issued by an insurer became unoccupied in October 2002. The insurer discovered that the premises had become unoccupied upon receipt of a claim at the end of January 2003. One week after the anniversary date of the policy, the insurer issued a mid-term cancellation notice.

The insurer states that it has been advised by the Consumer Services Bureau to reinstate the policy. The insurer is now asking whether the fact that the residence has become unoccupied would come within the following ground for cancellation in the policy: Discovery of willful or reckless acts or omissions increasing the hazard insured against. The Department has assumed that the uniform underwriting standards of the insurer prohibit the issuance of homeowners’ insurance policies for unoccupied property.

The Consumer Services Bureau has stated that the ground that was actually used in the insurer’s cancellation notice was "physical changes in the property," and that it advised the insurer to reinstate the policy based on that ground.

Analysis:

A homeowners’ policy, such as the one in question, comes within the meaning of "covered policy" under N.Y. Ins. Law § 3425(a)(2) (McKinney 2000 & Supp. 2004), and is therefore governed by the cancellation and nonrenewal provisions of § 3425 applicable to such policies. In pertinent part, § 3425(c) provides:

(c) After a covered policy has been in effect for sixty days, or upon the effective date if the policy is a renewal, no notice of cancellation shall be issued to become effective … unless it is based on one or more of the following:

* * *

(2) With respect to personal lines insurance policies:

* * *

(D) discovery of willful or reckless acts or omissions increasing the hazard insured against;

(E) physical changes in the property insured occurring after issuance or last annual anniversary date of the policy which result in the property becoming uninsurable in accordance with the insurer's objective, uniformly applied underwriting standards in effect at the time the policy was issued or last voluntarily renewed . . . .[Emphasis supplied]

As Consumer Services correctly advised, the insurer did not meet the physical change condition. Assuming that the property becoming unoccupied was a physical change, it had occurred prior to the last annual anniversary date. If the insurer had issued the cancellation notice prior to the renewal date, it would have come within the time frame but, since it did not issue the cancellation notice until after the policy renewed, it did not satisfy the condition and the notice was therefore invalid.

Turning to the other ground for cancellation, regarding "discovery of willful or reckless acts or omissions", there appears to be no case law interpreting § 3425 or the similar provision in N.Y. Ins. Law § 3426(c)(1)(D) (McKinney 2000 & Supp. 2004) when the reason is used as the result of the premises becoming unoccupied.

Assuming that the property becoming unoccupied means that the hazard increases, whether the insured has engaged in "willful or reckless acts or omissions" depends upon the specific facts. It cannot be said that in every case the property becoming unoccupied is the result of willful or reckless acts or omissions. In this particular case, according to the Consumer Services Bureau, the insured became ill and went into a hospital. It was unclear whether she was going to be returning to the premises. It does not appear that such activity was willful or reckless in this context. However, there may be other circumstances where the property becomes unoccupied as the result of willful or reckless acts or omissions.

For further information you may contact Principal Attorney Paul A. Zuckerman at the New York City Office.