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

George E. Pataki
Governor

Howard Mills
Superintendent

The Office of General Counsel issued the following informal opinion on May 3, 2004, representing the position of the New York State Insurance Department.

Re: Midterm Cancellation of Workers’ Compensation Insurance

Question Presented

If there is a workers’ compensation policy risk audit of the insured by a workers’ compensation insurer, and this audit covers a now expired policy, and the audit determines that an upward underwriting adjustment is needed to reflect the actual size of the insured’s risk, and the insured fails to pay the increased premium on the expired policy, may the insurer cancel the insured’s current workers’ compensation insurance policy midterm for non-payment of the premium owed on the expired policy?

Conclusion

Yes, the insurer may cancel an insured’s current workers’ compensation insurance policy midterm for non-payment of a premium owed on an expired policy subject to any limitations contained in the standard workers’ compensation insurance policy that was approved by the Department, if the insured complies with the N.Y. Workers’ Comp. Law § 54 (West, WESTLAW through 1993 legislation) and any and all other applicable laws and regulations.

Facts

The inquirer wants to know whether the OGC Opinion dated October 22, 2004, which discusses N.Y. Ins. Law § 3426 (McKinney 2000) relative to mid-term cancellation of a current commercial lines insurance policy for non-payment of premium on an expired policy, also applies to a workers’ compensation insurance policy where there has been an audit by the insurance company of the insured’s risk underlying an expired policy, and as a result the premium is increased, but the insured fails to pay the resulting increased premium.

Analysis

In the October 22, 2004 opinion that the inquirer cited in the inquirer’s request for an opinion, the Department determined that a current commercial lines insurance policy may not be cancelled midterm by the insurance company because the insured failed to pay the additional premium that the insurer demanded after the insurer conducted an audit of the insured’s risk for the period covered by an expired policy, and realized that the insured had underpaid the premium for the expired policy, and then demanded that the insured pay this additional premium to maintain coverage under the current policy. The Department determined that the current policy may not be cancelled midterm based on these facts because the expired policy and the current policy were two different policies, and the expired one was not enforceable under the current one.

The Department further opined that a commercial lines insurance policy may not provide that the insurer may cancel based on a premium owed for a prior policy, as in the above situation, and the Department would not approve such a clause of a policy. This conclusion was based on analysis of the term "covered policy" as it is defined in N.Y. Ins. Law § 3426(a)(1) (McKinney’s Supp. 2005). The opinion equated the phrase "covered policy" to the term "current" policy". The opinion concluded that N.Y. Ins. Law § 3426(c) (McKinney’s Supp. 2005), which states the reasons for which a "covered policy" may be cancelled, does not include as a reason for midterm cancellation failure of an insured to pay a premium due under a previously expired policy. A "covered policy" may be cancelled midterm for nonpayment, but a "covered policy" may not be cancelled midterm because of nonpayment of an expired policy.

The October 22, 2004 opinion that the inquirer cited in the inquirer’s request for an opinion only addressed cancellation of commercial lines insurance policies that are covered by N.Y. Ins. Law § 3426 (McKinney’s Supp. 2005). N.Y. Ins. Law § 3426(l)(2) (McKinney’s Supp. 2005), exempts workers’ compensation insurance policies from the limitations on cancellation imposed by N.Y. Ins. Law § 3426(e) (McKinney’s Supp. 2005). Cancellation of workers’ compensation insurance policies is governed by N.Y. Workers’ Comp. Law § 54 (West, WESTLAW through 1993 legislation) which states in pertinent part:

1. Cancellation and termination of insurance contracts. No contract of insurance issued by an insurance carrier against liability arising under this chapter shall be cancelled within the time limited in such contract for its expiration unless notice is given as required by this section. When cancellation is due to non-payment of premiums such cancellation shall not be effective until at least ten days after a notice of cancellation of such contract, on a date specified in such notice, shall be filed in the office of the chair and also served on the employer. When cancellation is due to any reason other than non-payment of premiums such cancellation shall not be effective until at least thirty days after a notice of cancellation of such contract, on a date specified in such notice, shall be filed in the office of the chair and also served on the employer; provided, however, in either case, that if the employer has secured insurance with another insurance carrier which becomes effective prior to the expiration of the time stated in such notice, the cancellation shall be effective as of the date of such other coverage. No insurer shall refuse to renew any policy insuring against liability arising under this chapter unless at least thirty days prior to its expiration notice of intention not to renew has been filed in the office of the chair and also served on the employer.

Such notice shall be served on the employer by delivering it to him, her or it or by sending it by mail, by certified or registered letter, return receipt requested, addressed to the employer at his, her or its last known place of business; provided that, if the employer be a partnership, then such notice may be so given to any of one of the partners, and if the employer be a corporation then the notice may be given to any agent or officer of the corporation upon whom legal process may be served; and further provided that an employer may designate any person or entity at any address to receive such notice including the designation of one person or entity to receive notice on behalf of multiple entities insured under one insurance policy and that service of notice at the address so designated upon the person or entity so designated by delivery or by mail, by certified or registered letter, return receipt requested, shall satisfy the notice requirement of this section. . . .

The insurer may cancel an insured’s current workers’ compensation insurance policy midterm for non-payment of a premium owed on an expired policy subject to any limitations contained in the standard workers’ compensation insurance policy that was approved by the Department, if the insured complies with N.Y. Workers’ Comp. Law § 54 (West, WESTLAW through 1993 legislation), and any and all other applicable laws and regulations.

For further information one may contact Senior Attorney Susan A. Dess at the New York City Office.