OGC Opinion No. 07-05-16
The Office of General Counsel issued the following opinion on May 29, 2007 representing the position of the New York State Insurance Department.
RE: Specific Reasons for Cancellation Under Insurance Law Section 3426(c)(1)(d)
Question Presented:
May an insurer that, pursuant to New York Insurance Law § 3426(c)(1)(d) (McKinney 2007), cancels a commercial risk insurance policy cite to the statute in the notice of cancellation rather than give an insured a specific reason for cancellation?
Conclusion:
No. An insurer that, pursuant New York Insurance Law § 3426(c)(1)(d) (McKinney 2007), cancels a commercial risk insurance policy may not only cite to the statute in the notice of cancellation. Rather, the insurer must cite to that statue and specify the reasons for cancellation.
Facts:
The inquirer reports that he represents an insurer that writes commercial risk insurance. The inquirer believes that when cancelling a policy pursuant to New York Insurance Law § 3426(c)(1)(d), a specific reason for cancellation does not need to be set forth in the notice of cancellation because the grounds for cancellation is a violation of that statute. Thus, the inquirer believes a reference to the statute is sufficient. In support of his interpretation, he relies on the Department’s Office of General Counsel Opinions dated October 5, 1999, and June 22, 2000.
Analysis:
New York Insurance Law § 3426 (McKinney 2007) governs the cancellation of commercial lines insurance policies, and provides for instances where an insurer has a statutory right of cancellation. For example, Insurance Law § 3426(c)(1)(d) provides:
(c) After a covered policy has been in effect for sixty days unless cancelled pursuant to subsection (b) of this section, or on or after the effective date if such policy is a renewal, no notice of cancellation shall become effective until fifteen days after written notice is mailed or delivered to the first-named insured and to such insured's authorized agent or broker, and such cancellation is based on one or more of the following:
(1) With respect to covered policies:
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(D) after issuance of the policy or after the last renewal date, discovery of an act or omission, or a violation of any policy condition, that substantially and materially increases the hazard insured against, and which occurred subsequent to inception of the current policy period;
Thus, an insurer may cancel a commercial risk insurance policy that has been in effect for 60 days or more if the insurer discovers an act or omission or a violation of policy condition that occurred after the current policy period, and that substantially and materially increases the hazard that is insured against.
However, cancellation under Insurance Law § 3426 is not automatic. In fact, Insurance Law § 3426(h) provides that:
(h) Every notice of cancellation issued pursuant to this section shall specify the grounds for cancellation and shall contain where applicable a reference to the pertinent paragraph or subparagraph of subsection (c) of this section. Every notice of nonrenewal issued pursuant to this section shall set forth or be accompanied by the reason for nonrenewal, and any such stated reason shall be valid and effective unless such reason violates this chapter or any other state or federal law.
Thus, an insurer must issue a notice of cancellation that sets for the grounds for cancellation, and reference the applicable statutory paragraph or subparagraph of Insurance Law § 3426(c), where applicable. Applying the longstanding rule of statutory construction that “effect and meaning must, if possible, be given to the entire statute and every part and word thereof”, see McKinney’s Statutes § 98, it is clear that the Legislature intended that an insured receive a notice of cancellation that references both the relevant provisions of Insurance Law § 3426 and specifies the actual basis for cancellation.
In support of the inquirer’s conclusion that a specific reason for cancellation pursuant to Insurance Law § 3426(c)(1)(D) need not be set forth, he relies on Office of General Counsel Opinion dated October 5, 1999, which states that an insurer that cancels a policy for non-payment of premium pursuant to Insurance Law § 3426(c)(1)(A) does not need to state the amount of premium owed. That opinion, in turn, relied on Gannon v. N.Y. Mutual Underwriters, 78 A.D.2d 399 (3rd Dept. 1981), where, in interpreting Insurance Law § 167-a (now Insurance Law § 3425, which contains similar notice provisions to Insurance Law § 3426), the court found no support in the language of the statute for the proposition that a premium amount must be stated. The notice at issue there, however, specified with particularity that the policy was cancelled for non-payment of premium. Moreover, in 2003, the legislature amended Insurance Law § 3426(c)(1)(A) to require that a notice of cancellation for non-payment of premium specify the amount due. Thus, there is no merit to the inquirer’s assertion that a specific reason for cancellation does not need to be set forth under Insurance Law § 3426(c)(1)(D) because it is not a requirement under Insurance Law § 3426(c)(1)(A). In fact, in light of the requirements set forth in Insurance Law § 3426(h), every notice of cancellation based under Insurance Law § 3426(b) or (c) must set forth specific reasons for cancellation.
In addition, the inquirer relies on an Office of General Counsel Opinion dated June 22, 2000, which states that on the facts as presented there, the insurer may charge an insured a premium increase, pursuant to Insurance Law § 3426(d)(1), when based on the grounds for cancellation set forth under Insurance Law § 3426(c)(1)(d). However, that opinion does not concern cancellations, but rather premium increases. Given that circumstance, it is inapposite.
For further information, you may contact Assistant Attorney Sapna Maloor at the New York City office.