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 23, 2007, representing the opinion of the New York State Insurance Department.

Re: Cancellation of a Commercial Lines Insurance Policy

Question Presented:

What reason may an insurer use to cancel a commercial lines insurance policy under New York Insurance Law § 3426(b)?

Conclusion:

An insurer may cancel a commercial lines insurance policy under Insurance Law § 3426(b) for any reason that does not violate state or federal law.

Facts:

Attached to an inquiry was an insurer’s termination and non-renewal endorsement, upon which the inquiry had been based. However, the particular provision inquired about pertained to Insurance Law
§ 3426(b). Thus the inquiry was re-framed accordingly.

Analysis:

Insurance Law § 3426 establishes the minimum requirements for canceling and non-renewing most commercial lines property/casualty insurance policies, including those in the free trade zone. An insurer may cancel a covered policy for any reason not otherwise prohibited by law under Insurance Law § 3426(b), which states:

(b) During the first sixty days a covered policy is initially in effect, except for the bases for cancellation set forth in paragraph one, two or three of subsection (c) of this section,1 no cancellation shall become effective until twenty days after written notice is mailed or delivered to the first-named insured at the mailing address shown in the policy and to such insured's authorized agent or broker.

The insurer’s reason for canceling the policy must be specified in the notice pursuant to Insurance Law § 3426(h), which provides:

(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.

For further information you may contact Associate Attorney Sally Geisel at the New York City Office.

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1 The twenty-day effective-date-of-cancellation provision does not apply when the basis for cancellation is a reason specified in  Insurance Law § 3426(c)(1), (2), or (3).  In such case, a fifteen day minimum notice is required.