OGC Op. No. 08-11-04
The Office of General Counsel issued the following opinion on November 18, 2008, representing the position of the New York State Insurance Department.
RE: Nonrenewal of Commercial Insurance Policies
May an insurer nonrenew a professional liability insurance policy by sending notice of its intention to do so to the insured five days after the insured’s policy has expired?
No. Pursuant to N.Y. Ins. Law § 3426(e) (McKinney 2007), a covered policy of commercial lines insurance, such as a professional liability insurance policy, will automatically renew upon its expiration under the same terms, conditions and rates unless the insurer mails or delivers written notice to the insured at least sixty but not more than one hundred twenty days (or, for an excess liability policy or a policy issued to a jumbo risk, at least thirty, but not more than 120 days) prior to the policy’s expiration stating that the insurer will 1) not renew the policy, 2) condition its policy renewal upon certain changes to the policy, or 3) either not renew or condition policy renewal.
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 (a licensed property/casualty insurance agent) is a managing general underwriter (MGU) for an authorized insurer that issues claims-made professional liability insurance. The inquirer state that the agent sends, receives and underwrites renewal applications for the insurer, including “sending renewal proposals, receiving and processing the subsequent renewal orders and [issuing the policies.]” The inquirer notes that:
[T]here are insureds who (1) do not return the renewal application prior to the policy expiration, or (2) completer an application, receive a renewal proposal, but then do not order the renewal before expiration. In both of these situations, there is often no communication indicating that the insured did not desire the renewal: they just do not respond.
The inquirer asks whether the agency (on behalf of the insurer) may lawfully implement the following procedure for renewals:
The agency initiates the renewal process by sending the renewal application 120 days prior to expiration.
The agency sends a follow-up at 75 days and then again at 35 days.
Finally, five days after the expiration date, the agency sends a “final letter” if it has not received a response to the three earlier contacts. The final letter will advise the insured that the agent will not issue a renewal policy.
A covered policy of commercial lines insurance,1 such as a professional liability insurance policy, remains in full force and effect pursuant to the same terms, conditions and rates under Insurance Law § 3426(e)(1) unless the insurer mails or delivers written notice to the insured at least sixty but not more than one hundred twenty days prior to the policy’s expiration2 stating that the insurer will 1) not renew the policy, 2) condition its policy renewal upon certain changes to the policy,3 or 3) either condition the renewal or not renew. Thus, unless the insurer delivers one of the aforementioned notices to the insured within the time frame prescribed by the statute, a covered policy will automatically renew. If an insurer delivers to the insured a late conditional renewal notice or a nonrenewal notice prior to the expiration of the policy, the policy’s coverage will remain in effect until the later of the expiration of the policy or sixty days after the insurer mails or delivers the late notice.
There is no requirement in Insurance Law § 3426 or any other provision of the Insurance Law that the insured submit an application for renewal or that the insured otherwise request policy renewal. That being said, the Insurance Law and regulations promulgated thereunder do not proscribe an insurer from requesting information from its insured prior to renewal of a covered policy to enable the insurer to underwrite the renewal policy. Thus, your member’s proposal to send a renewal application to each insured 120 days prior to policy expiration and to follow-up the request at 75 and 35 days prior to the covered policy’s expiration does not run afoul of any provision of the Insurance Law.
But an insured’s failure to submit the requested information will not in itself affect the covered policy’s renewal. Rather, the covered policy will renew automatically unless the insurer mails or delivers to the insured one of the statutory notices described above within the time frame required by the statute. Thus, the insurer may not, as your member proposes, attempt to nonrenew a policy five days after its expiration date by notifying the insured that the agent will not issue a renewal policy. Indeed, such an attempted nonrenewal would be inconsistent with the method specified in Insurance Law § 3426(e) for an insurer to nonrenew a covered policy. Moreover, the insurer may not nonrenew the policy after its expiration, since the policy already would have renewed automatically by the operation of law.
For further information you may contact Senior Attorney Brenda M. Gibbs at the Albany Office.
1 Insurance Law § 3426(a)(1) defines the term “covered policy” as “a policy of commercial risk insurance, professional liability insurance or public entity insurance, and shall include any contract, certificate or other evidence of such insurance.”
2 The notice for an excess liability policy or a policy issued to a jumbo risk must be mailed or delivered at least thirty, but not more than 120, days before the expiration date of the policy. N.Y. Ins. § 3426(e)(3).
3 Under Insurance Law § 3426 (e)(1), the insurer may condition the policy renewal upon a change of limits, change in type of coverage, reduction of coverage, increased deductible or addition of exclusion, or upon increased premiums in excess of 10%.