George E. Pataki
The Office of General Counsel issued the following opinion on September 21, 2006 representing the position of the New York State Insurance Department.
Re: Proof of Mailing
Some insurance companies require that premium payments be mailed to lock boxes in banks that post the payment and discard the envelope that contains the date on which the payment was mailed. On occasion a premium payment is made after a notice of cancellation for non-payment but the payment is not posted by the bank immediately and the premium payment is deemed late, which can lead to a refusal of the insurer to reinstate the policy. How can an insurance producer protect its clients under such circumstances?
See analysis below.
The inquirer is an insurance producer. Per the insurer’s procedures, after receiving a notice of cancellation for non-payment, an insured timely sends a check for insurance premium payments to the address designated by the insurer which is a lock box at a bank that records and deposits the check and then discards the envelope containing the postmark date on it. Due to the delay in the recording of this data, payments are recorded as late and the policies are consequently cancelled. The insurer refuses to reinstate when advised that the payment had been timely.
The Department has opined that an insurance premium is generally deemed paid on the date of the postmark.1 As stated in Government Employees Insurance Company v. Solaman, 597 NYS2d 990 (N.Y. Sup.Ct. 1993), the mailing of a premium payment by the insured, after the receipt of a proper cancellation notice but prior to the cancellation date was sufficient to keep the policy in effect. The court used the well established “Postal Acceptance Rule,” which states that in the absence of a limitation to the contrary, a contract is considered complete and the offer accepted when the payment is delivered to the post office to be mailed. Therefore, unless there is an agreement to the contrary, even though a payment may not have been processed and posted by the bank that received it, it is considered paid on the date it is mailed and an insurer may not refuse reinstatement based upon this delay in processing.
An insured may protect himself/herself from having his/her policy cancelled as a result of late payment by sending the payment with a request for a return receipt. If this is done, then even if the payment is not recorded by the date it is due, the insured will have proof that the payment was made on time.
The inquirer was advised that if he has a client who has had a policy cancelled due to this practice, the client may file a claim with the Consumer Services Bureau of the Department.
Additionally, the Department expects every insurance company to have a system, or procedure in place that would preclude improper cancellations as discussed above.
For further information you may contact Principal Attorney Paul A. Zuckerman at the New York City Office.
1 See OGC opinion 06-07-12, dated July 12, 2006.