The Office of General Counsel issued the following opinion on April 7, 2008 representing the position of the New York State Insurance Department.
Re: Calculation of a Financed Insurance Policy Return Premium
Must an authorized insurer make a pro rata return of a property/casualty insurance policy financed premium to a premium finance agency for the benefit of the insured following the insured’s failure to pay a premium finance agency the amount owed on the insurance policy, where the policy provides that the insurance premium is fully earned after 90 days or provides for a 30% minimum premium, or where a filed amendment provides a different earned premium schedule?
Yes. Pursuant to N.Y. Ins. Law § 3428(e)(McKinney 2007), an authorized insurer must return the gross unearned premium due under the financed insurance contract on a pro rata basis to the premium finance agency for the benefit of the insured. However, the insurer is entitled to a minimum earned premium of ten percent of the gross premium or sixty dollars, whichever is greater. An insurance policy provision that provides that the insurance premium is fully earned after 90 days, or that provides for a 30% minimum premium, or where a fixed amendment provides a different earned premium schedule, is contrary to Insurance Law § 3428(e) and does not relieve an insurer of its statutory obligation.
The inquiry is of a general nature, without reference to particular facts.
Insurance Law § 3428 is relevant to the query. The statute addresses the calculation of an insurance policy return premium. Insurance Law § 3428(a) reads as follows:
Except as provided in subsection (e) of this section, whenever an insurance contract made or issued in this state is cancelled or otherwise terminated by the insured before the expiration thereof in accordance with the terms of such contract, the earned premium to be retained by the insurer shall be determined by the applicable rate filing, if any, otherwise in accordance with the provisions of such contract.
Insurance Law § 3428(e), however, provides that:
Whenever an insurance contract, issued by or on behalf of an authorized insurer or insurers, the premiums for which are advanced under a premium finance agreement as defined in section five hundred fifty-four of the banking law, is cancelled, upon such cancellation the authorized insurer or insurers shall return the gross unearned premiums due under the insurance contract or contracts, on a pro rata basis to the bank, lending institution, premium finance agency or premium finance company, for the benefit of the insured, provided, however, that such authorized insurer or insurers shall be entitled to retain a minimum earned premium on the policy of ten percent of the gross premium or sixty dollars, whichever is greater.
As far back as 1909, there has been a provision in the N.Y. Insurance Law to address payment of a return premium following cancellation of an insurance policy. Insurance Law § 3428(e) makes no exception for a calculation that is based upon an insurance policy provision that concerns an earned premium that is fully earned after 90 days, a minimum premium, or a filed amendment of a different earned premium schedule. The scenarios about which the inquirer asks simply do not displace the governing statutory framework.
Insurance Law § 3428(e) sets forth the calculation necessary to determine an authorized insurer’s retained premium and the premium finance agency’s unearned premium return. The insurer must return the gross unearned premium due under the insurance contract on a pro-rata basis, whereby the gross premium is considered to be earned over the course of the policy term and the insurer is returning the portion of the premium charged for the unexpired portion of the policy term. However, the insurer is entitled to a minimum earned premium of ten percent of the gross premium or sixty dollars, whichever is greater. The insurance policy provisions to which the inquirer refers are contrary to the text of Insurance Law § 3428(e) itself.
For further information you may contact Principal Attorney Donald Carroll at the New York City Office.