OGC Opinion No. 08-01-07
The Office of General Counsel issued the following opinion on January 28, 2008 representing the position of the New York State Insurance Department.
RE: Workers’ Compensation Agent Termination
Questions Presented:
1) Once it terminates an agent, may a workers’ compensation insurer terminate the workers’ compensation policies that the agent procured?
2) If the workers’ compensation insurer has an “at will” employment agreement with its agent, does the Insurance Law prohibit the insurer from terminating the agent’s appointment for any reason?
3) Must the insurer give the agent notice prior to terminating the agent? If so, must the insurer accept new business or renewals during that period?
4) If there is a notice period for terminating an agent, does it apply to the appointment, or contract, or both?
Conclusions:
1) The New York Insurance Law (McKinney 2007) does not specifically address whether a workers’ compensation insurer may cancel or non-renew a workers’ compensation policy previously procured by an agent who the workers’ compensation insurer later terminates. Because the Workers’ Compensation Law governs cancellations of workers’ compensation policies, and because the Insurance Department does not generally opine about the Workers’ Compensation Law, we advise that the inquirer contact the Workers’ Compensation Board directly for confirmation.
2) No. The Insurance Law does not address a workers’ compensation insurer’s termination of its agent’s appointment, except as provided in N.Y. Ins. Law § 2112 (McKinney 2007). That statute governs the certificate of appointment of an insurance producer by an insurer.
3) No. There is no requirement in the Insurance Law that the insurer gives an agent notice prior to terminating the agent’s contract. And, whether or not the insurer accepts new business or renewals during a notice period, if any, is a matter of contract between the insurer and agent.
4) While there is no minimum notification period prior to terminating an agent in the Insurance Law, once an insurer or its agent terminates a contract, the agent’s appointment is no longer valid.
Facts:
The inquiry is of a general nature, without reference to facts.
Analysis:
The inquirer’s first question asks whether an insurer that terminates an agent may also cancel or non-renew workers’ compensation policies procured by such agent. Workers’ compensation coverage, a type of property/casualty coverage, is commercial lines insurance. Insurance Law § 3426 covers cancellation and non-renewal of most commercial lines property/casualty insurance, but that statute expressly excludes workers’ compensation coverage. The Insurance Law therefore does not address an insurer’s grounds for non-renewing or cancelling a workers’ compensation insurance policy; rather, that issues is governed by Workers’ Compensation Law § 54. That statute reads as follows:
No contract of insurance issued by an insurance carrier against liability arising under this chapter shall be cancelled within the time limited in such contract for its expiration unless notice is given as required by this section. When cancellation is due to non-payment of premiums such cancellation shall not be effective until at least ten days after a notice of cancellation of such contract, on a date specified in such notice, shall be filed in the office of the chair and also served on the employer. When cancellation is due to any reason other than non-payment of premiums such cancellation shall not be effective until at least thirty days after a notice of cancellation of such contract, on a date specified in such notice, shall be filed in the office of the chair and also served on the employer; provided, however, in either case, that if the employer has secured insurance with another insurance carrier which becomes effective prior to the expiration of the time stated in such notice, the cancellation shall be effective as of the date of such other coverage. No insurer shall refuse to renew any policy insuring against liability arising under this chapter unless at least thirty days prior to its expiration notice of intention not to renew has been filed in the office of the chair and also served on the employer.
Therefore, the Workers’ Compensation Law—about which the Insurance Department does not typically opine—does not appear to limit the grounds under which a workers’ compensation insurer may cancel a policy.
Nor does the standard policy form used by most workers’ compensation insurers state with any specificity the circumstances whereby an insurer may cancel the policy. The New York Compensation Insurance Rating Board (NYCIRB)1 files the Workers’ Compensation and Employers Liability Manual (“Manual”) with the Department on behalf of its members. The Manual contains the standard and state-specific policy forms and endorsements that the Department has approved. Form WC 00 00 00A, the standard policy form, sets forth the insurer-initiated cancellation provision, and simply states:
2. We may cancel this policy. We must mail or deliver to you not less than ten days advance written notice stating when the cancelation[sic] is to take effect. Mailing that notice to you at your mailing address shown in Item 1 of the Information Page will be sufficient to prove notice.
Thus, the standard workers’ compensation policy does not limit, by its terms, the circumstances under which an insurer may cancel a workers’ compensation policy.
The inquirer’s second question asks whether the Insurance Law prohibits a workers’ compensation insurer from terminating its agent’s appointment when the contract between the agent and the insurer is “at will.” Insurance Law § 2112, which governs the certificate of appointment of an insurance producer to act as an agent and the notice of termination of an insurance producer, is relevant to that inquiry. Insurance Law § 2112(c) states:
(c) Certificates of appointment shall be valid until (i) terminated by the appointing insurer after a termination in accordance with the provisions of the agency contract; (ii) the license is suspended or revoked by the superintendent; or (iii) the license expires and is not renewed.
Therefore, a certificate of appointment is valid until the appointing insurer terminates it in accordance with the agency contract. An insurer may terminate an agent’s appointment pursuant to an “at will” agreement. See, e.g., Forken v. Cigna Corp., 234 A.D.2d 992 (4th Dept. 1993); Huskission v. Sentry Ins., 123 A.D.2d 832 (2nd Dept. 1986). However, when an insurer terminates an agent’s appointment, Insurance Law § 2112(d) requires that the insurer file with the Superintendent a statement, in such form as the Superintendent may prescribe, setting forth the facts relative to a termination for cause. See Office of General Counsel Opinion dated June 11, 1973 (“An insurer terminating an agent or broker is not required to give the reason for such termination to the agent or broker. However, the basis for the termination must be set forth in the quarterly statement,2 which the insurer is required to file with the Insurance Department”).
The inquirer’s third question asks whether a workers’ compensation insurer must give an agent notice prior to terminating the agent’s contract. If so, the inquirer asks whether the insurer must accept new business or renewals during that period. There is no requirement in the Insurance Law that an insurer must give an agent notice prior to terminating the agent’s contract. That is a matter of contract law, governed by the agreement between the insurer and its agent. And, whether the insurer must accept new business or renewals during any notice period set forth in the contract is not governed by the Insurance Law; it, too, is governed by the contract.
The inquirer’s final question asks whether any minimum notification period prior to terminating an agent applies to the contract, the appointment, or both. As previously stated, there is no requirement in the Insurance Law that an insurer give an agent notice prior to terminating the agent’s contract. However, once an insurer or its agent terminates the contract, the appointment is no longer valid.
For further information you may contact Senior Attorney Sapna Maloor at the New York City Office.
1 NYCIRB is a private unincorporated association of insurers, which is licensed as a rate service organization, responsible for the collection of workers compensation data and the development of workers compensation rates and rules regarding the proper application of rates to workers compensation policies.
2 So in original. Chapter 687 of the Laws of 2003 amended Insurance Law § 2112(d) to require the statement to be filed within 30 days of a termination.