The Office of General Counsel issued the following opinion on November 22, 2005 representing the position of the New York State Insurance Department.
Re: Individual Life Insurance, Conditional Receipts
1) Are the requirements of N.Y. Comp. Codes R. & Regs. tit. 11, § 52.53 (2002) (Regulation 62) applicable to individual life insurance?
2) Where a conditional receipt was issued, may an insurer, as a condition of, or as a requirement for, the delivery of an issued individual life insurance policy, require an additional certification of good health?
3) If such an additional statement was given, what would be the effect under the New York Insurance Law (McKinney 2000 and 2005 Supplement)?
1) Regulation 62 is, by its terms, only applicable to accident & health insurance.
2) In accordance with the terms of the approved and issued conditional receipt, such an additional statement may not be required.
3) The insurer could not consider such a statement to be material for contestability purposes.
Several applications for individual life insurance were submitted for which a conditional receipt to a foreign authorized life insurer had been issued. As part of the submission, included were a full modal premium, a health history, and, where applicable, an Attending Physicians Statement and/or the results of a current insurance medical examination. When the life insurer sent the policies to the producer for delivery to the insureds, it indicated that as a condition precedent to such delivery, the producer must obtain a current certification from the insureds that there had been no change in their insurability.
The producer is aware of the requirements of N.Y. Comp. Codes R. & Regs. tit. 11, § 52.53 and inquires if such requirements are applicable to individual life insurance and the ramifications of insureds making current certifications of insurability.
N.Y. Comp. Codes R. & Regs. tit. 11, § 52.53 is part of the Minimum Standards for Form Content and Sale of Health Insurance (Regulation 62) and provides in pertinent part:
Except as otherwise stated herein an insurer must issue either a conditional receipt or interim insurance agreement if premium is paid prior to delivery of the policy and the insurer requires a determination of insurability as a condition precedent to the issuance of a policy. The following rules shall apply to conditional receipts and interim insurance agreements: (a) a conditional receipt which requires a determination of insurability as a condition precedent to coverage shall include an agreement: . . . (2) to provide that such insurability be determined as of a date no later than the date of completion of all parts of the application, including completion of the first medical examination if one is required by the company's underwriting rules, and the required premium has been paid. Completion of a second medical examination may be required as a condition precedent to coverage if initially required by the company's underwriting rules because of the amount of insurance applied for or the age of the proposed insured.
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(e) Although the proposed insured dies, undergoes a change in health or otherwise becomes uninsurable according to the company's underwriting standards for the plan of insurance for which application was made after the date provided for in subdivision (a) of this section but before the application is approved or rejected, and before the expiration of any time limit specified in the receipt, a company may determine that the proposed insured is not insurable only as of the date specified in subdivision (a) of this section. Information relating to an event or physical condition which is the subject of a question in any part of the company's application cannot be considered for underwriting purposes if the event or accident occurred or sickness first manifested itself after completion of that part of the application.
While Regulation 62 by its terms only applies to health insurance, the Department has in Circular Letter 4 of 1963 (September 20, 1963), as amended by Circular Letter 3 of 1969 (May 16, 1969), established Guidelines for Examination of Individual Life Policies and Related Forms. Since New York Insurance Law § 3201(a) (McKinney 2000 and 2005 Supplement) includes all documents providing insurance within the definition of "policy form", conditional receipts are subject to approval by the Insurance Department.
The Guidelines, in Part VI, apply to all conditional receipts which require a determination of insurability as a condition precedent to coverage. Part VI-B of the Guidelines provides:
1. A conditional receipt must include an agreement: . . . (b) to provide that such insurability be determined as of a date upon which the companys initial application requirements have been completed and the required premium has been paid.
In this situation, the terms of the issued conditional receipt set forth the "effective date":
the latest of (i) the date of the Application(s) for insurance (Part 1(s)), (ii) the date of the Application for Insurance (Part 2s) (or the date of the latest Part 2s) if more than one is required), (iii) the date of the latest completion of any medical examinations, tests, x-rays and electrocardiograms which are initially required by the Companys published underwriting rule, or (iv) the Policy Date, if any, requested in the Application(s).
The requirement for a current certification of insurability upon policy delivery would be contrary to the terms of the conditional receipt issued. The insurer, by its action of requiring the completion of a certification of insurability after the effective date set forth in the receipt, is violating the contractual terms of an approved policy form.
Further, if such post issuance underwriting is being done as a general practice, the Department would consider a proceeding in accordance with New York Insurance Law § 2405(a) (McKinney 2000) to declare the practice a determined violation. Finally, if the insurer is using an approved statement of good health policy form to circumvent the contractual terms of the conditional receipt, it may be necessary, in accordance with New York Insurance Law § 3110 (McKinney 2000), to withdraw approval of the policy form.
Even if material misrepresentation was made on the certification of insurability, it would be deemed a nullity, since the information provided in the certification of insurability cannot negate the contractual terms of the issued conditional receipt.
For further information you may contact Principal Attorney Alan Rachlin at the New York City office.