The Office of General Counsel issued the following opinion on August 2, 2006 representing the position of the New York State Insurance Department.
Re: Cancellation of a Motor Vehicle Insurance Policy by a Premium Finance Agency
When an insureds motor vehicle liability policy is paid for through the use of a premium finance agreement, what is the earliest date that such a policy may be canceled by the insurer when cancellation is requested by the premium finance agency on behalf of the insured?
The earliest date that a motor vehicle insurance policy cancellation may be deemed effective when requested by a premium finance agency is as of 12:01 A.M. of the day after the cancellation request was received by the insurer.
No facts were presented.
New York Banking Law § 576 prescribes the methods of prospective cancellation applicable to a premium finance agency with the power to act on behalf of an insured with whom the agency has contracted and states in part:
1. When a premium finance agreement contains a power of attorney or other authority enabling the premium finance agency to cancel any insurance contract or contracts listed in the agreement, the insurance contract or contracts shall not be cancelled unless such cancellation is effectuated in accordance with the following provisions:
(a) Not less than ten days written notice shall be mailed to the insured at his last known address as shown on the records of the premium finance agency, of the intent of the premium finance agency to cancel the insurance contract unless the default is cured within such ten day period and that at least three days for mailing such notice is added to the ten day notice. A copy of the notice of intent to cancel shall also be mailed to the insurance agent or broker.
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(d) After the notice in paragraph (a) above has expired, the premium finance agency may thereafter, in the name of the insured, cancel such insurance contract by mailing to the insurer a notice of cancellation stating when thereafter the policy shall be cancelled, and the insurance contract shall be cancelled as if such notice of cancellation had been submitted by the insured himself, but without requiring the return of the insurance contract. A copy of the notice of cancellation shall also be mailed to the insured.
While Banking Law § 576 allows a premium finance agency to prospectively request cancellation of an insurance policy on behalf of the insured, that cancellation of a policy, including one that is financed, cannot be earlier than the date that the notice of cancellation is received by the insurer. (Office of General Counsel Opinion # 03-05-10 (May 12, 2003), referencing Office of General Counsel Opinions dated May 8, 1990, December 31, 1982, November 24, 1982 and January 5, 1982 and Circular Letter 1981-19.). In other words the policy may not be cancelled retroactively.
New York Gen. Constr. Law § 19 (McKinney 2006) defines the meaning of a day and states as follows:
A calendar day includes the time from midnight to midnight. Sunday or any day of the week specifically mentioned means a calendar day.
The courts of New York have further interpreted the meaning of a day to disregard a fraction of a day unless the hour of the day is particularly pertinent. Lanni v. Grimes 173 Misc. 614, 18 N.Y.S.2d 322 (N.Y. Sup. Ct.) (1940).
Therefore, an insurer that cancels a policy effective on the same day that it receives notice of cancellation is, in effect, cancelling the policy as of 12:01 A.M. of that same calendar day. Cancelling the policy in such a manner would result in a retroactive cancellation, which, as stated above, is not permissible. Therefore, the earliest that a motor vehicle insurance policy may be cancelled by an insurer when so requested by a premium finance agency acting on behalf of an insured is 12:01 A.M. of the calendar day after the request has been received by the insurer. Any such cancellation must be otherwise in accordance with the provisions of the New York Vehicle and Traffic Law.
For further information you may contact Supervising Attorney Lawrence M. Fuchsberg at the New York City Office.