New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

Andrew M. Cuomo
Governor

James J. Wrynn
Superintendent

OGC Op. No. 11-06-03

The Office of General Counsel issued the following opinion on June 21, 2011 representing the position of the New York State Insurance Department.

Re: Cancellation Notification to Both an Agent and a Broker

Questions Presented:

Must an insurer that cancels an insurance policy in accordance with N.Y. Ins. Law § 3425 (McKinney 2007 and Supp. 2011) provide cancellation notices to all insurance agents and brokers that may be within the chain of producers of a particular policy?

Conclusion:

No. In addition to providing a cancellation notice to the insured, pursuant to Insurance Law § 3425, an insurer need only provide a cancellation notice to the authorized insurance agent or broker that the insured designates to receive information on the insured’s behalf.

Facts:

The inquirer states that he represents an authorized property/casualty insurer. He asks whether the insurer must send a cancellation notice to both an insurance broker and an insurance agent in instances where an insurance broker has procured the policy and places it through an insurance agent.

Analysis:

Insurance Law § 3425 governs cancellation of certain property/casualty insurance policies. Insurance Law § 3425(h)(3) provides in pertinent part:

A copy of every notice of cancellation, reduction of limits, substitution of policy form, elimination of coverages, conditioned renewal or of intention not to renew, including the reasons therefor, or a summary of such notice, shall be mailed, delivered or transmitted to the insured’s authorized agent or broker within seven days of the time such notice is mailed to the named insured.

Accordingly, a copy of every notice of cancellation must be mailed, delivered or transmitted to the insured’s authorized agent or broker within seven days of the time such notice is mailed to the named insured.

Here, you ask whether an insurer must send a cancellation to both an insurance agent and broker where a broker procures a policy governed by Insurance Law § 3425 and places it through an agent.

In an Office of General Counsel (“OGC”) opinion dated April 16, 1990, the OGC addressed the same question with respect to commercial lines policies cancelled pursuant to Insurance Law § 3426. There, the inquirer asked whether the notification requirements to cancel an insurance policy under Insurance Law § 3426 impose on the insurer the obligation to notify all brokers or agents who may be within the chain of producers of a particular policy or only the broker or agent designated on the policy to be cancelled. In reply, the opinion states:

We note that there is no definition of the word “authorized” in the statute. The Department interprets the insured’s authorized agent or broker to be the agent or broker that the insured designates to receive information on its behalf. The purpose of this requirement is for the insured to be advised as soon as possible by the agent or broker that it chose to procure insurance. The agent or broker that the insured actually and directly authorized to service its insurance needs would presumably be most interested in retaining business from the client by providing the most effective consultation. Usually, such licensee would also be the individual listed on the policy as the authorized agent or broker but in those cases where a number of licensees have been engaged in the particular insurance transaction, the only agent or broker the law requires the insurer to notify is the licensee that the insured chose to do business with. The insurer must establish in its underwriting practice the necessity of obtaining the identity and address of the insured’s authorized agent or broker in order to be in compliance with the notification requirements of Section 3426. In those cases where the insured terminates the relationship with the licensee, the successor licensee chosen by the insured to handle the account would have to make his or her identity known to the insurer or its agent in order to receive notification under § 3426. See id.

Both Insurance Law §§ 3425(h)(3) and 3426(b) and (c), which set forth the notification requirement for cancellation, state that the cancellation notice be sent to the “authorized agent or broker.” Given that there is no definition of “authorized” in Insurance Law § 3425, the Department would take the same position with respect to that statute as it did in the April 16, 1990 opinion regarding Insurance Law § 3426.

Accordingly, in addition to providing a cancellation notice to the insured, an insurer need only provide a cancellation notice to the authorized insurance agent or broker that the insured designates to receive information on its behalf.

For further information, you may contact Senior Attorney Sapna Maloor at the New York City office.