OGC Op. No. 09-11-03
The Office of General Counsel issued the following opinion on November 12, 2009, representing the position of the New York State Insurance Department.
RE: Cancellation of Workers’ Compensation Insurance Policy
May an insurer cancel an insured’s current workers’ compensation insurance policy midterm for non-payment of the expired policy’s audit premium?
An insurer may cancel an insured’s current workers’ compensation insurance policy midterm for non-payment of the expired policy’s audit premium, so long as the policy does not contain any limitations to the contrary, and provided that the insurer complies with New York Workers Compensation Law § 54 (McKinney 2006), and any and all other applicable laws and regulations.
An insurance producer reported that an insurer canceled an insured’s workers’ compensation insurance policy midterm because the insured did not pay the audit premium on its most recently expired policy. The producer also reported that the insurer had provided coverage to the insured for several years, and that none of the previous audits resulted in premium change except for the most recent audit, which resulted in a very large additional premium. The producer stated that the insured disputes the accuracy of the audit results, and for that reason, refused to pay the audit premium. The insurer subsequently canceled the insured’s current policy.
New York Insurance Law § 3426 (McKinney 2007) sets forth, among other things, the minimum cancellation provisions applicable to most property/casualty commercial lines insurance policies. However, Insurance Law § 3426(l)(2) explicitly excludes workers’ compensation and employers’ liability coverage. Instead, the cancellation provisions for workers’ compensation insurance are governed by Workers Compensation Law § 54(5), which reads as follows:
Cancellation and termination of insurance contracts. 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.
Such notice shall be served on the employer by delivering it to him, her or it or by sending it by mail, by certified or registered letter, return receipt requested, addressed to the employer at his, her or its last known place of business; provided that, if the employer be a partnership, then such notice may be so given to any of one of the partners, and if the employer be a corporation then the notice may be given to any agent or officer of the corporation upon whom legal process may be served; and further provided that an employer may designate any person or entity at any address to receive such notice including the designation of one person or entity to receive notice on behalf of multiple entities insured under one insurance policy and that service of notice at the address so designated upon the person or entity so designated by delivery or by mail, by certified or registered letter, return receipt requested, shall satisfy the notice requirement of this section. Provided, however, the right to cancellation of a policy of insurance in the state fund shall be exercised only for non-payment of premiums or as provided in section ninety-four of this chapter.
The provisions of this subdivision shall not apply with respect to policies containing coverage pursuant to subsection (j) of section three thousand four hundred twenty of the insurance law relating to every policy providing comprehensive personal liability insurance on a one, two, three or four family owner-occupied dwelling.
In the event such cancellation or termination notice is not filed with the chair within the required time period, the chair shall impose a penalty in the amount of up to five hundred dollars for each ten-day period the insurance carrier or state insurance fund failed to file the notification. All penalties collected pursuant to this subdivision shall be deposited in the uninsured employers' fund.
Workers Compensation Law § 54(5) imposes no limitations on the reasons that an insurer may cancel a workers’ compensation insurance policy. Thus, unlike a policy subject to Insurance Law § 3426, a workers’ compensation insurance policy may be canceled by an insurer midterm for non-payment of the expired policy’s audit premium, so long as the policy does not contain any limitations to the contrary, and provided that the insurer complies with Workers Compensation Law § 54, and any and all other applicable laws and regulations. See Insurance Department’s Office of General Counsel Opinion dated May 3, 2005.
However, an insured may invoke the right of review of rating classifications afforded by Insurance Law § 2319. That statute permits an aggrieved insured to request, in writing, a review of the rating classification(s) applied to its policy. An insured that does not receive a timely response to its request for review, or receives an adverse determination, may appeal to the Superintendent for a hearing and new decision. Insurance Law § 2319 reads as follows:
(a) Every insurer and rate service organization shall within a reasonable time after receiving written request therefore, and upon payment of a reasonable charge, furnish to any insured affected by a rate made by it, or to the authorized representative of the insured, all pertinent information as to the rate.
(b) Except as provided in subsection (c) of this section, every insurer or rate service organization shall provide within this state reasonable means whereby any person aggrieved by the application of its rating system may be heard, in person or by an authorized representative, on written request to review the manner in which such rating system has been applied in connection with the insurance afforded or offered. If the insurer or rate service organization fails to grant or reject the request within thirty days, applicant may proceed in the same manner as if the application had been rejected. Any party affected by the action of the insurer or rate service organization on the request may within thirty days after written notice of such action appeal to the superintendent, who, after a hearing held upon not less than ten days written notice to the appellant and to the insurer or rate service organization, may affirm, modify or reverse such action.
(c)(1) Subject to the regulations of the superintendent, every workers' compensation rate service organization shall establish and implement procedures for the review of its determination to make a rating classification, relating to insurance authorized pursuant to paragraph fifteen of subsection (a) of section one thousand one hundred thirteen of this chapter, which has been filed with and approved by the superintendent. Such procedures for review shall (A) ensure that such organization shall, within a reasonable period of time after receiving written request therefore, furnish any insured affected by a rating classification made by the organization, or to the authorized representative of the insured, any information pertaining to the insured's file and any information, upon request, pertaining to the application of the classification, and (B) require an insured aggrieved by such determination to submit a written request for review of the rating classification. The failure of such rate service organization to respond in writing to a written request submitted pursuant to this subsection within sixty days, shall authorize the applicant for review to proceed as though the classification challenged was disapproved by the rate service organization. If the workers' compensation rate service organization cannot, within such sixty day period, make such determination or advise the insured that an inspection, audit or study is required, the organization shall submit a written request to the superintendent, within the sixty day period, requesting a reasonable extension of the time period in which to make such determination.
(2) Any insured adversely affected by a review, completed pursuant to paragraph one of this subsection, may, within thirty days of receiving written notice of the results of the review, appeal such review in writing to the superintendent. Such appeal shall specify the grounds to be relied upon by the appellant. The superintendent shall make a determination and notify the insured within sixty days of receipt of the request for an appeal as to whether he or she finds that the application is made in good faith, that the applicant would be so aggrieved if his grounds are established, and that such grounds otherwise justify holding such a hearing. If the superintendent determines that such criteria have been met by the insured's application, then the superintendent shall hold a hearing on such matter within sixty days of receipt of the request for an appeal, but upon no less than ten days written notice to the parties of the hearing. The superintendent may affirm, modify or reverse the review of the rate service organization.
(3) Any determination by the superintendent, pursuant to paragraph two of this subsection, shall be reviewable pursuant to article seventy-eight of the civil practice law and rules.
Thus, the right of review provided by Insurance Law § 2319 may assist the insured here in resolving its dispute over the expired policy’s premium audit.
For further information you may contact Associate Attorney Sally Geisel at the New York City Office.