OGC Op. No. 11-06-02
The Office of General Counsel issued the following opinion on June 16, 2011 representing the position of the New York State Insurance Department.
Re: Anti–Arson Applications
Under the New York Insurance Law and regulations promulgated thereunder, when must an insurer require a construction contractor to complete an anti-arson application in connection with a builders’ risk policy?
New York Insurance Law § 3403(b) requires that an insurer obtain an anti-arson application for all property insurance policies covering the peril of fire or explosion. Although the statute sets forth certain exceptions to the requirement, an insurer may nonetheless require the anti-arson application as part of its underwriting requirements.
The inquirer reports that building contractors who are required to complete anti-arson applications in connection with builders’ risk policies are concerned about doing so because the information required in the application may only be readily available to the owner of the property and not the contractor. The inquirer also reports that only certain insurers require the anti-arson application while others do not.
The inquirer asks for the Department’s opinion regarding the circumstances under which an anti-arson application must be completed in connection with a construction contractor’s application for a builders’ risk policy.
N.Y. Ins. Law § 3403 is relevant to the inquiry. An anti-arson application, as defined under N.Y. Ins. Law § 3403(a)(1), “means any application for insurance or renewal of insurance, covering the peril of fire or explosion that includes certain questions contained in subsection (c) of this section, which shall be answered by the applicant in addition to the basic information normally supplied to the insurer by the applicant.”
The anti-arson application requirement set forth under N.Y. Ins. Law § 3403(b) states as follows:
(b) Except as provided in subsection (g) of this section the use of the anti-arson application shall be mandatory for all property insurance policies covering the peril of fire or explosion.
Thus, an anti-arson application is generally required to be completed by any applicant for a builders’ risk policy, since such policy customarily includes coverage for loss during construction due to fire, vandalism or malicious mischief. See Opinion of General Counsel No. 04-09-05 (September 14, 2004) (a tenant who applies to insure leasehold improvements that the tenant makes on the leased property where the tenant resides must complete an anti-arson application).
However, Insurance Law § 3403(g) sets forth exceptions to the anti-arson application requirement. It states as follows:
(g)(1) The provisions of this section shall not apply to any insurance policy or contract covering the peril of fire or explosion with respect to owner-occupied real property used predominantly for residential purposes which consists of not more than four dwelling units.
(2) The provisions of this section shall only apply to cities with a population of over four hundred thousand persons according to the nineteen hundred seventy census, except that within a reasonable time after receiving a petition by the governing board of a local municipal corporation as those terms are defined in article one of the general municipal law, the superintendent shall mandate the use of the anti-arson application within specific designations contained in such petition.
These exceptions effectively limit the anti-arson application requirement to policies covering multiple-unit residential properties that are not owner-occupied and commercial properties located in New York City, and in any municipality that has filed a petition with the Superintendent seeking such a mandate. The cities of Rochester and Buffalo have filed such petitions, which the Department has approved, and as a result, the anti-arson application requirement also applies in those cities.
Finally, the inquirer was also advised that insurers may include the anti-arson application requirement in their underwriting guidelines even where it would not otherwise be mandated under the Insurance Law or regulations promulgated thereunder. Thus, an insurer could require an anti-arson application even if the insurer is not required to do so by Insurance Law § 3403.
In sum, the Insurance Law and regulations clearly require that a construction contractor must complete an anti-arson application in connection with a builders’ risk policy unless the risk covered falls within the exceptions contained in Insurance Law § 3403(g). It is therefore incumbent upon the contractor/applicant to obtain the required information necessary to complete the application from the owner, if necessary.
For further information you may contact Associate Counsel Bradley F. Rice at the Albany Office.