The Office of General Counsel issued the following opinion on February 8, 2006, representing the position of the New York State Insurance Department.
Re: Termination of Producer-Insurer Contract Non-Renewal of Automobile Insurance
May an insurer non-renew a non-commercial or commercial automobile insurance policy for the reason that the insured made late premium payments?
The insurer may non-renew the non-commercial or commercial automobile insurance policy for such reason in accordance with N.Y. Ins. Law §§ 3425(f) and 3426(e), respectively (McKinney Supp. 2006).
Certain insurers send non-renewal notices concerning automobile insurance policies of insureds for the reason that they are repeatedly late in submitting their premium payments. Often, the insurer received the premium only a day or two prior to the date of cancellation for nonpayment of premium. The inquirer asks whether this is permissible.
Section 3425(d)(1) (McKinney Supp. 2006) requires for non-commercial automobile insurance policies that the "specific reason or reasons for non-renewal or conditioned renewal shall be stated in or shall accompany the notice." To similar effect concerning commercial automobile insurance policies is Section 3426(h) (McKinney Supp. 2006). Presumably, the insurer is counting the non-renewal of the policy among its right to non-renew personal automobile insurance policies pursuant to Section 3425(f) (McKinney Supp. 2006), which provides:
(f)(1) With respect to automobile insurance policies, the total number (rounded to the nearest whole number) of notices of intention not to renew a covered policy, and of notices of intention to condition renewal upon reduction of limits or elimination of any coverages, which an insurer may issue shall be limited for each calendar year to two percent of the total number of covered policies of the insurer in force at last year-end in each such insurers rating territory in use in this state which have completed their required policy period under this section. However, the insurer may non-renew or conditionally renew one policy in any such insurers rating territory in use in this state, if the applicable percentage limitation results in less than one policy. Cancellations made pursuant to subsection (b) or (c) of this section shall be independent of and in addition to the number of notices of intention not to renew or to condition renewal upon reduction of limits or elimination of any coverages not required by law, permitted under this subsection.
(2) For every two new automobile policies which the insurer voluntarily writes in each such territory, such insurer shall be permitted to non-renew or conditionally renew one additional automobile policy in that territory in excess of the two percent limit established in paragraph one of this subsection, subject to a fair and nondiscriminatory formula developed by the superintendent, which shall consider the number of automobile policies written less cancellations initiated by the insurer within the first sixty days of the policy.
Under Sections 3425 and 3426, an insurer generally may non-renew a policy for any legitimate underwriting reason not prohibited by law. Non-renewal based on late payment is not prohibited by law. If the insurer is subsequently found to be in violation of the number of non-renewals permitted under § 3425, the insurer would be subject to discipline by the Department. Accordingly, the insurer may non-renew the policy for the reason that the insured is repeatedly late in submitting premium payments.
For more information please contact Associate Attorney Jeffrey A. Stonehill at the New York City Office.