OGC Op. No. 09-11-02
The Office of General Counsel issued the following opinion November 6, 2009, representing the position of the New York State Insurance Department.
RE: Cancellation of Insurance for Non-payment; Insured has Filed for Bankruptcy
Is there any provision in the Insurance Law or the regulations promulgated thereunder that prohibits an insurer from cancelling for nonpayment a marine insurance policy where the insured has filed for Chapter 11 bankruptcy protection?
No. There is nothing in the Insurance Law or regulations promulgated thereunder that prohibits an insurer from taking such an action.
A commercial insured covered by a marine insurance policy1 filed for bankruptcy protection under Chapter 11 of the federal Bankruptcy Code. Following that filing, the insurer cancelled the policy for non-payment of premium. The insured’s counsel informed the insurer that the cancellation violates the “automatic stay” provided for under the federal Bankruptcy Code.2 The insurer then reinstated the policy as new business “until cancelled” with annual “renewal endorsements”.
New York Insurance Law § 3426(b) and (c) (McKinney 2006), which governs the cancellation of most commercial lines property/casualty insurance, is relevant to the inquiry. Those statutory provisions read in pertinent part as follows:
(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, 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.
(c) After a covered policy has been in effect for sixty days unless cancelled pursuant to subsection (b) of this section, or on or after the effective date if such policy is a renewal, no notice of cancellation shall become effective until fifteen days after written notice is mailed or delivered to the first-named insured and to such insured's authorized agent or broker, and such cancellation is based on one or more of the following:
(1) With respect to covered policies:
(A) nonpayment of premium provided, however, that a notice of cancellation on this ground shall inform the insured of the amount due;
* * * * *
Insurance Law § 3426(b) and (c) require an insurer to provide timely notice to the insured of cancellation on grounds of nonpayment of premium. Pursuant to that statute, if an insurer wishes to cancel a liability insurance policy, it must provide the requisite written notice to the insured that specifies the reasons for the cancellation. So long as the reason is not otherwise prohibited by law, the Insurance Law does not otherwise limit an insurer’s ability to cancel for nonpayment of premium. Nothing in the Insurance Law or the regulations promulgated thereunder otherwise prohibits an insurer for cancelling a policy for non-payment of premium where the insured has filed for bankruptcy protection.
Notably, Insurance Law § 3426(l)(2) provides that Insurance Law § 3426 does not apply to policies “principally marine insurance.” That Insurance Law § 3426 does not apply to marine insurance, however, is ultimately irrelevant to the inquiry in that there is no provision of the Insurance Law or regulations thereunder that contains any prohibition on cancellations for nonpayment where the insured has filed for bankruptcy protection under Chapter 11 of the Bankruptcy Code. Therefore, insofar as the Insurance Law is concerned, an insurer is free to cancel a policy for nonpayment of premium irrespective of the insured’s bankruptcy status.
For further information you may contact Supervising Attorney Michael Campanelli at the New York City Office.
1 Marine insurance is a kind of insurance defined under New York Insurance Law § 1113(a)(20)(McKinney Supp. 2009). It generally provides protection against loss of or damage to ships, aircraft, and other vehicles, as well as cargoes and transportation infrastructure. Although defined as a single kind of insurance, marine insurance is bifurcated into two broad subcategories, “ocean” marine and inland marine, each of which encompasses different types of risk, and are treated differently for many regulatory purposes. The policy at issue here appears to be ocean marine.
2 The filing of a bankruptcy case, under any chapter of the Bankruptcy Code, triggers an injunction against the continuance of any action by any creditor against the debtor or the debtor's property. See 11 U.S.C. §362. The automatic stay is not lifted until one of the following occurs: a judge lifts the stay at the request of a creditor; the debtor gets a discharge; or the item of property is no longer property of the estate.