OGC Op. No. 10-11-06

The Office of General Counsel issued the following opinion on November 19, 2010, representing the position of the New York State Insurance Department.

Re: Amendment to Policy Issued in Free Trade Zone: Applicable Notice Requirements

Question Presented:

Must an insurer provide notice to an insured prior to amending a special risk insurance policy issued pursuant to Article 63 of the Insurance Law?

Conclusion:

Yes, pursuant to N.Y. Ins. Law § 3426(e)(1) (McKinney 2007), an insurer that is licensed to write special risk insurance pursuant to Article 63 (“Free Trade Zone”) must provide the insured with a 60-120 day notice of conditional renewal prior to amending a policy. However, if the policy is an excess liability policy or a policy issued to a jumbo risk, pursuant to Insurance Law § 3426(e)(3), the insurer must provide at least 30-120 days notice to the insured prior to amending the policy.

Facts:

The inquirer reports that his client is insured by an insurer licensed to write insurance in New York’s Free Trade Zone. The inquirer states that the policy, which covers a construction project, includes a New York amendatory endorsement with standard New York cancellation provisions. Among other things, the inquirer states that the insurer in question changed the terms of the policy by proposing to eliminate coverage if the insured did not meet certain conditions. The inquirer wishes to know if the insurer needed to provide a 60-day notice to the insured when it changed the terms of the policy.

Although we requested additional facts concerning whether the policy in question is an excess liability ¹, or jumbo risk ², we were never provided such facts. As a result, this opinion will address in a general manner the question presented, and assume that the risk in question is located in New York.

Analysis:

The inquirer asks whether Article 63 exempts an insurer that sells policies in the Free Trade Zone from the notice requirements set forth in Article 34 of the Insurance Law. Article 63 of the Insurance Law, entitled Special Risks; Filing Exemption, is relevant to the inquiry. Insurance Law § 6303(a)(ii) states that the article applies to “a risk or class of risks which is of an unusual nature, a high loss hazard, or difficult to place, pursuant to a list promulgated or amended by the superintendent.” Insurance Law § 6301(a) provides that “the superintendent shall, pursuant to regulations promulgated by him, permit exemption from filing requirements only with respect to rates and policy forms, where applicable, for any of the kinds of insurance authorized to be written in this state.”

Therefore, an insurer that writes policies in the Free Trade Zone (“Article 63 insurer”) is only exempt from filing rates and forms with the Superintendent of Insurance. The insurer is not otherwise exempt from complying with required terms, conditions and rates promulgated thereunder in its policies, and is still bound by the same standards and regulations applied to insurers that are required to file rates and forms with the Superintendent. See, e.g., Office of General Counsel (“OGC”) Opinion No. 05-11-04 (November 3, 2004); OGC Opinion No. 04-03-29 (March 31, 2004).

Commercial property/casualty insurance is governed by the notice provisions contained in Insurance Law § 3426. Typically, an Article 63 insurer provides insurance coverage to commercial entities. Generally, Insurance Law § 3426 (e) requires an insurer to provide notice of a conditional renewal or nonrenewal of a policy at least 60, but no more than 120 days, prior to expiration of a policy. An Article 63 insurer is not exempt from the cancellation or renewal notice requirements in Insurance Law § 3426 when canceling, renewing or otherwise altering the terms of a policy. However, excess liability and jumbo risk policies written in the Free Trade Zone are addressed in Insurance Law § 3426 (e)(3), which provides that with regard to “an excess liability policy or a policy issued to a jumbo risk, the notice shall be mailed or delivered at least thirty, but not more than one hundred twenty, days in advance of the expiration date of the policy.” Furthermore, Insurance Law § 3426 (e)(1)(B) permits an insurer that issues a conditional renewal notice relating to an excess liability policy in New York to treat the conditional renewal notice as an effective notice of nonrenewal if the insured fails to satisfy the conditions as of the later of the expiration date of the policy or 60 days after mailing or delivery of the conditional renewal.

Therefore, an Article 63 insurer that fails to provide the applicable notice to the insured must renew the policy in question under the original policy terms, conditions and rates. See OGC Opinion No. 04-03-01 (March 2, 2004).

For further information you may contact Supervising Attorney D. Monica Marsh at the New York City office.

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¹ “Excess liability policy” means a policy of commercial risk, public entity or professional liability insurance, including a commercial umbrella policy, when written over one or more underlying liability policies that provide with respect to the same risk coverage of at $500,000 in the aggregate. See Insurance Law § 3426(a)(6).

² “Jumbo risk” means a business entity that generates gross revenues exceeding $100,000,000 annually and that develops an annual liability premium for the policy of at least $500,000, but does not include any public entity or not-for-profit corporation. See Insurance Law § 3426(a)(8).