The Office of General Counsel issued the following opinion on April 4, 2007 representing the position of the New York State Insurance Department.
RE: Reciprocal Insurer and Enforcement of Sixty Days’ Notice Before Withdrawing From Membership
May a reciprocal insurer require that a subscriber provide 60 days’ notice to the insurer before withdrawing from membership in the reciprocal?
Yes. The terms of a subscriber’s agreement may provide that a subscriber must provide 60 days’ notice to the insurer before withdrawing from membership in the reciprocal.
The inquirer reports that this inquiry stems from a subscriber’s agreement written by the New York Municipal Insurance Reciprocal (“NYMIR”) that evidently contains a revocation clause that requires a subscriber to give 60 days’ notice prior to withdrawing from membership in the reciprocal.
Article 61 of the Insurance Law governs reciprocal insurers. A reciprocal insurer is comprised of individuals, partnerships or corporations that engage in a similar line of business and undertake to indemnify each other against property/casualty losses through the mutual exchange of insurance contracts. The members of a reciprocal insurer are known as “subscribers,” and each subscriber is both an insured and an insurer.
Every reciprocal insurer must have a subscriber’s agreement. See N.Y. Ins. Law 6101(g) (McKinney 2000). A subscriber’s agreement is “a document executed by the subscriber which designates and appoints, through a power of attorney, the attorney-in-fact and, either within the agreement or via a management agreement or an appended set of by-laws, that sets forth the duties of the attorney-in-fact.”1 Ins. Law § 6101(h).As set forth in Insurance Law § 6102(b)(9), the original subscribers and the attorney-in-fact must execute a declaration setting forth, among other things, “an exact and complete copy of the articles of association, if any, and the subscriber’s agreement.” Under Insurance Law § 6102(d), the Superintendent is required to approve that the declaration, which includes the subscriber’s agreement, is in conformity with the law.2 After the Superintendent approves the declaration, the reciprocal insurer must obtain a license issued by the Superintendent in order to do business in New York. Ins. Law § 6105(b).
Insurance Law § 6106(3) dictates what provisions each subscriber’s agreement must contain. Specifically, N.Y. Insurance Law § 6106(a)(3)(G) (McKinney 2007) provides:
(3) Every such subscriber's agreement shall contain in substance the following provisions:
(G) General provisions relating to the operations of the reciprocal insurer, including the subscriber's operating reserve requirements, regulations for the return of savings or dividends, for withdrawals and refunds and such other matters as may be necessary to maintain the operation of such reciprocal insurer in compliance with the provisions of this chapter. In the case of a municipal reciprocal insurer, such agreement shall include procedures to: (i) establish and promote loss control, safety programs and other methods of risk management; (ii) establish equitable risk classifications; and (iii) establish uniform recordkeeping and reporting procedures.
The Insurance Law does not specifically address how much notice a subscriber must provide prior to withdrawing from membership in the reciprocal. However, the subscriber’s agreement may include provisions addressing such issues as withdrawal from membership, as well as any required notice for withdrawal. Pursuant to Insurance Law § 6106(a)(3)(G), the notice requirement for withdrawals from membership is considered “necessary to maintain the operation of such reciprocal insurer.” Thus, in response to the inquiry, a subscriber’s agreement, such as the one the Department approved that NYMIR wrote, may dictate that a subscriber give 60 days’ notice prior to withdrawing from membership in the reciprocal.
Although the term “withdrawal” is used throughout Article 61 of the Insurance Law, those references relate to withdrawal of reserve funds, not from membership in the reciprocal. Insurance Law § 6106(a)(3)(G), for instance, requires that the subscriber’s agreement contain “general provisions relating to the operations of the reciprocal insurer, including the subscriber’s operating reserve requirements, regulations for the return of savings or dividends, for withdrawals and refunds”. Similarly, Insurance Law § 6109(b) states in relevant part:
(b) Any authorized reciprocal insurer may, pursuant to the terms of the subscriber's agreement and to any action of its advisory committee authorized thereunder, require its subscribers to accumulate subscriber's operating reserves in excess of the minimum specified in subsection (a) hereof and may require a longer period of notice for the withdrawal of all or any part of such reserve than that herein specified.
Insurance Law § 6109(c)(2) uses the term "withdrawal" to describe two separate types of events. The statute reads as follows:
(c)(2) Any subscriber's operating reserve accumulated by any such reciprocal insurer shall be maintained at all times, except that a subscriber may, upon withdrawal from membership and cancellation of all insurance contracts held by him in such insurer, and after giving to the attorney-in-fact written notice of withdrawal at least sixty days in advance, withdraw the amount of his operating reserve less such surrender charges as may be deducted pursuant to the subscriber's agreement.
Thus, the statute refers to "withdrawal from membership" in the reciprocal and to the withdrawal of funds held by a reciprocal to the credit of the subscriber. The Department has construed the 60 days’ notice requirement referenced in Insurance Law § 6109(c)(2) to require that a subscriber give 60 days’ written notice of its intention to withdraw funds, not to withdraw from membership in the reciprocal. See Opinion of General Counsel No. 00-06-11 (June 28, 2000).
For further information you may contact Senior Attorney Elizabeth Barrett at the New York City Office.
1 An attorney-in-fact is defined under Insurance Law § 6101(b) as “a person designated and appointed by subscribers to a reciprocal insurer to act for and bind the subscribers in all transactions relating to or arising out of the operations of a reciprocal insurer….”
2 Insurance Law § 6107(a)(1) also requires that the Superintendent approve any changes or amendments to the subscriber’s agreement.