The Office of General Counsel issued the following opinion on April 16, 2008 representing the position of the New York State Insurance Department.
RE: Premium audits of policies issued on risks located outside of this state
Does N.Y. Comp. Codes R & Regs. (NYCRR) tit. 11, § 161.10 (2008) apply to policies that a New York-domiciled insurer issues to cover risks and operations outside the state?
No. Article 23 of the Insurance Law does not apply to risks and operations outside of New York, and therefore, 11 NYCRR § 161.10, which derives its authority from that article, does not apply to policies covering risks or operations outside the state.
The inquirer reports that it is a New York-domiciled insurer that issues approximately 60 general liability policies on an auditable basis, insuring risks or operations located outside of New York. The insurer solicits, negotiates, issues, and delivers all policies in this state, even if all the risks are located elsewhere. Furthermore, the insurer’s policies specify that they are subject to premium audit, but do not specify the jurisdiction whose law would apply to that audit. Since all of the risks or operations are outside of this state, the inquirer asks whether New York insurance regulations relating to premium audits would apply to those policies.
On June 28, 1986, Governor Mario M. Cuomo signed omnibus legislation embodied in Chapter 220 and 221 of the Laws of 1986 into law, as a response to the difficulty of obtaining affordable commercial risk insurance, professional liability insurance, and public entity insurance in New York and elsewhere. The legislation permitted flex-rating, a novel blend of prior approval and competitive rating principles, that permits insurers on a “file and use” basis to revise rates upward or downward, within certain limits, without prior approval. See Insurance Law § 2344 (McKinney 2008). Insurance Law § 2344 requires the Superintendent to promulgate a regulation setting forth flex-rating exemptions, standards, and procedures. Pursuant to that mandate, the Superintendent adopted 11 NYCRR Part 161 in 1986.
11 NYCRR § 161.10 requires an insurer, within 180 days after expiration of a policy, to audit premiums to determine the final premium when the initial premium is based on an estimate of the insured’s exposure base. The insurer must refund or credit the insured’s account for any return premium due to the insured, or bill or make a good faith attempt to collect any additional premium due the company as a result of the audit.
However, Article 23 of the Insurance Law, which applies to property/casualty insurance rates, only applies to risks or operations located in this state. Therefore, a policy insuring risks and operations outside of this state is not subject to Article 23 of the Insurance Law. Consequently, the procedural requirements of 11 NYCRR § 161.10, which derives its statutory authority from Article 23, do not apply to risks and operations outside of this state. Nevertheless, while 11 NYCRR § 161.10 may not apply to the policies, an insurer must comply with the policy provisions and the laws relative to premium audits of the applicable jurisdiction.
For further information you may contact Senior Attorney Sapna Maloor at the New York City office.