New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

Eliot Spitzer
Governor

Eric Dinallo
Superintendent

The Office of General Counsel issued the following opinion on July 19, 2007, representing the position of the New York State Insurance Department.

Re: Three-year required policy period

Question Presented:

On what date does the required three-year policy period begin for a homeowners policy, as required by Insurance Law § 3425(a)(7), under the circumstances described below?

Conclusion:

An insurer may non-renew a homeowners insurance policy three years from the date that the insurer issued the homeowners1 insurance policy, but only after providing timely notice to the insured as required by Insurance Law § 3425.

Facts:

The inquirer reports that the inquirer is the Director of Research and External Communications for a professional membership organization for insurance agents and brokers. The inquirer further reports that one of the members of the inquirer's organization, a New York licensed property/casualty agent, has approximately 200 homeowners insurance policies that were "written with the ABC group. That group sold the renewal rights to XYZ in late 2003."

The inquirer states that XYZ began converting the former ABC policies to XYZ policies as they reached their anniversary dates in 2004. Further, the inquirer states that XYZ wishes to reduce its underwriting exposure in catastrophe-prone areas by canceling policies that were originally executed by ABC in late 2003.

The insurance agent asks when XYZ may non-renew the policies in accordance with the three year required policy period provided in Insurance Law § 34325(a)(7). Stated differently, from what date must XYZ calculate the required policy period: the original date of issuance of the insurance contract by ABC, or the date that ABC "sold the renewal rights" to XYZ?

Analysis:

Insurance Law § 3425 is relevant to this inquiry. It reads in pertinent part as follows:

(a) This section shall apply to covered policies of insurance as defined in paragraphs one, two and three hereof.

* * *

(7) With respect to personal lines insurance, "required policy period" means a period of three years from the date as of which a covered policy is first issued or is voluntarily renewed.

* * *

(e) With respect to personal lines insurance policies, no notice of nonrenewal or conditional renewal of a covered policy shall be issued to become effective during the required policy period unless it is based upon a ground for which the policy could have been cancelled. With respect to homeowners' policies as defined in section two thousand three hundred fifty-one of this chapter, on properties located in areas served by a market assistance program established by the superintendent for the purpose of facilitating placement of homeowners' insurance, notices of cancellation, nonrenewal or conditional renewal shall conform with standards established by the superintendent in regulation. Such standards shall require that the notice include, at a minimum: notification of the possibility of eligibility for coverage through a market assistance program or the New York property insurance underwriting association; information on how to apply; and such other information as required by the superintendent.

Although the inquirer states that ABC sold the "renewal rights" to XYZ in late 2003, and that "XYZ began converting the former ABC policies to XYZ policies as they reached their anniversary dates in 2004," Insurance Law § 3425 does not recognize the concept of "converting" policies or "selling" renewal rights. In any event, the manner by which ABC non-renewed its policies is not relevant here, nor is the manner in which XYZ established relationships with ABC's former insureds.

The only relevant date for purposes of this inquiry is the one on which XYZ first issued its policies, because that is the date from which the required policy period is calculated. As provided by Insurance Law § 3425(a)(7), the three-year required policy period begins on the day that the homeowners policy is issued. Therefore, XYZ may non-renew a homeowners insurance policy by providing timely notice once three years have passed from the date that XYZ initially issued the policy.2

For further information one may contact, Senior Attorney Susan A. Dess at the New York City Office.

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1 The Insurance Law and regulations use the terms "homeowners", "homeowner's" and "homeowners"' interchangeably.  For the sake of consistency, the Department adopts "homeowners" as its preferred use.

2 This inquiry also implied that XYZ has announced its intention to reduce its underwriting coverage in a supposedly catastrophe-prone area. If it is the intention of an insurer to reduce the percentage of policies that it issues in this state, then Insurance Law § 3425(o), which outlines the process to be followed for the orderly reduction in the volume of policies written, may apply. As a first step of that process, XYZ would have to submit to the Superintendent a plan for orderly reduction in the volume of policies written.