The Office of General Counsel issued the following opinion on February 28, 2005, representing the position of the New York State Insurance Department.
Re: Agency Termination
Question Presented:
What rights are granted a terminated insurance agent, who has produced non-commercial automobile insurance business for the insurer, under the New York Insurance Law?
Conclusion:
The rights that are granted a terminated insurance agent, who has produced non-commercial automobile insurance business for the insurer in the voluntary market, are generally contained in N.Y. Ins. Law § 3425(j) (McKinney Supp. 2005).
Facts:
An employee of ABC Company states that this company acts as the managing general agent for XYZ Insurance Company, an authorized insurer in New York, for its line of non-commercial automobile insurance policies for antique autos. The employee states that ABC administers to and manages all of the insurance transactions for XYZ, except for claims adjusting, which XYZ handles itself.
The employee states further that ABC deals with appointed agents in NY that receive commission on the sale of new and renewal XYZ automobile insurance policies for antique autos, and that one of these agents has made derogatory comments about ABC in letters that it sent to XYZs policyholders asking the policyholders to switch to a new insurer. The employee wishes, on ABCs behalf, to terminate the agency agreement and questions how this is to be accomplished under the New York Insurance Law.
Analysis:
With respect to non-commercial automobile insurance policies written in the voluntary (non-NYAIP) market, the provisions that deal with termination of an insurance agents contract are contained in N.Y. Ins. Law § 3425(j) (McKinney Supp. 2005), which states:
(j) (1) Where an insurer or an agent who is authorized by such insurer to accept lines of insurance from licensed agents or brokers notifies a licensed agent or broker that its contract or account shall be terminated:
(A) with respect to a personal lines insurance policy required to be continued by this section, the insurer shall offer to continue the policy for any remaining part of the required policy period and any statutory extension and the insurer shall offer to continue the policy through the terminated agent or broker for at least its next one year policy period which commences within one year following the date of mailing or delivery to the terminated agent or broker of written notice of termination of such contract or account, and thereafter, at the specific request of the insured, shall offer to continue the policy through such terminated agent or broker for any remaining part of the required policy period including statutory extension;
(B) with respect to an automobile insurance policy subject to this section, the insurer shall offer to continue the policy for any remaining part of the required policy period and, unless the policy is cancelled or non-renewed in accordance with the provisions of either subsection (b), (c) or (f) of this section, it shall, at the specific request of the insured, offer to continue the policy through the terminated agent or broker for three successive one year policy periods which commence within the year following the date of mailing or delivery to the terminated agent or broker of written notice of termination of such contract or account;
(C) with respect to all new personal lines and automobile insurance business offered by such terminated agent or broker which is subject to the provisions of this section, the insurer shall accept all such business meeting the insurer's then current underwriting standards during the period of one hundred twenty days next following the date of mailing or delivery to the agent or broker of written notification of such termination;
(D) the terminated agent or broker shall be entitled to receive commissions on account of all business continued or written pursuant to this paragraph at the insurer's prevailing commission rate for such lines of insurance; and
(E) the provisions of subparagraph (B) hereof in relation to continuation of coverage for three successive one year policy periods are subject to the rights of the insurer pursuant to subsection (b), (c) or (f) of this section to cancel or non-renew. The provisions of subparagraph (D) hereof in relation to commissions shall not be mandatory after completion of the three one year policy periods provided for in subparagraph (B) hereof.
(2) This subsection shall not apply to an agent who agrees to represent exclusively one insurer or a group of insurers under common management or an agent or broker whose license has been revoked by the superintendent or whose contract or account has been terminated for insolvency, abandonment, gross and willful misconduct, or failure to pay over to the insurer moneys due to the insurer after receipt of a written demand therefor.
(emphasis added).
ABC was referred to as the general managing agent for XYZ. N.Y. Comp. Codes R. & Regs. tit. 11, § 33.2(c) (Regulation 120) defines a managing general agent as follows:
(c) Managing general agent (MGA) means any person, firm, association or corporation that:
(1) manages all or part of the insurance business of an insurer (including the management of a separate division, department or underwriting office);
(2) acts as an insurance agent as defined in section 2101(a) of the Insurance Law for such insurer, whether known as a managing general agent, manager, or other similar term, or acts as an insurance broker as defined in section 2101(c) of the Insurance Law; and
(3) with or without the authority, either separately or together with affiliates, produces, directly or indirectly, and accept or reject risks on behalf of the insurer (underwrites) an amount of gross direct written premium equal to or more than five percent of the policyholder surplus as reported in the last annual statement of the insurer in any one quarter or year together with one or more of the following activities related to the business produced:
(i) Adjusts or pays claims in excess of $ 25,000, or
(ii) Negotiates reinsurance on behalf of the insurer.
To be considered a managing general agent in New York, all of the criteria of § 33.2(c) must be met. It was stated that ABC does not handle the claims adjusting for XYZ. Thus, it is not likely that ABC meets the definition of managing general agent. Based on Department records, ABC is not licensed as an insurance agent in New York, although it is licensed as an insurance broker. However, this does not mean that ABC is not an agent of XYZ for purposes of N.Y. Ins. Law § 3425(j)(1). Based on the description provided of the services that ABC provides for XYZ, ABC is authorized by such insurer to accept lines of insurance from licensed agents or brokers. Therefore, ABC is acting as an agent under N.Y. Ins. Law § 3425(j).
N.Y. Ins. Law § 3425(j) provides a terminated insurance agent with certain rights regarding business that it produced for the insurer. However, pursuant to N.Y. Ins. Law § 3425(m), different provisions of § 3425(j) apply based upon when the policy was first written.
The required policy period for a covered policy of automobile insurance voluntarily written on dates other than 8/2/2001 6/25/2003 is one year pursuant to N.Y. Ins. Law § 3425(a)(8) and (m) (McKinney Supp. 2005). Where an agents contract has been terminated, N.Y. Ins. Law § 3425(j)(1)(B) (McKinney Supp. 2005) requires an insurer to offer to keep such policy in force through the terminated agent for any remaining part of the one-year required policy period. Thereafter, at the specific request of the insured, the insurer shall offer to continue the policy through the terminated agent for three successive one year policy periods, which commence one year from the date that the termination notice was mailed or delivered.
The required policy period for a new automobile insurance policy that was voluntarily written between 8/2/2001 6/25/2003 is three years pursuant to N.Y. Ins. Law § 3425(m) (McKinney Supp. 2005).
Where an agent who has placed such policies has its contract with the insurer terminated, N.Y. Ins. Law § 3425(j)(1)(A) (McKinney Supp. 2005) applies. This section requires the insurer to offer to keep such policy in force for the remainder of the three-year required policy period. In addition, the insurer must also offer to continue the policy through the terminated agent for the next one-year policy period. Thereafter, at the specific request of the insured, the insurer must offer to continue the policy through the terminated agent for the remaining years of the three-year required policy period.
Practically speaking, however, a policy originally written between 8/2/2001 6/25/2003 will have a required policy period renewal date that falls outside the three-year required policy period. After the three-year required policy period, such policy, if renewed, becomes subject to the one-year required policy period of § 3425, including the § 3425(j)(1)(B) requirements where the insurer must offer to continue the policy through the terminated agent for three successive one year policy periods, which commence one year from the date that the termination notice was mailed or delivered.
It should be noted that an agents rights under § 3425(j) neither enhance nor diminish the rights accorded to insureds or insurers under § 3425. Thus, an insured may cancel or non-renew a policy that had been placed by a terminated agent at any time at his or her discretion. And an insurer may cancel or non-renew a policy that had been placed by a terminated agent based upon any of the grounds, and in the manner, provided by the other applicable provisions of § 3425, unimpeded by § 3425(j).
For further information you may contact Associate Attorney Sally Geisel at the New York City Office.