Insurance Circular Letter No. 11 (2018)

August 10, 2018

STATUTORY REFERENCES: Insurance Law §§ 2334, 2335, and 2349; Vehicle and Traffic Law § 605; and 11 NYCRR 169 (Insurance Regulation 100)

I. Background

The purpose of this Circular Letter is to advise all insurers authorized to write motor vehicle insurance in New York State (“motor vehicle insurers”), the New York Automobile Insurance Plan (“NYAIP”), rate service organizations (“RSOs”), and licensed insurance producers that motor vehicle insurers may not include loss-of-use costs when calculating whether the aggregate damage to property resulting from a motor vehicle accident exceeds $2,000 under any motor vehicle liability insurance coverage or noncommercial physical damage motor vehicle insurance coverage¹ issued or issued for delivery in this state or otherwise covering a motor vehicle registered in New York State.

Insurance Law § 2335(a) generally prohibits an authorized insurer from increasing the policy premium on any motor vehicle liability insurance coverage solely because the insured or any other person who customarily operates a motor vehicle covered by the policy has had an accident that does not result in “aggregate damage to property” in excess of $2,000. In addition, Section 169.1(a) of Insurance Regulation 100, which implements Insurance Law § 2334, generally prohibits an insurer from imposing a surcharge on any noncommercial motor vehicle insurance coverage when the accident does not result in “aggregate damage to property” in excess of $2,000. Insurance Regulation 100 also prohibits any surcharge applicable to comprehensive coverage premiums nor may comprehensive coverage claims be used to surcharge any other coverage.

The prohibition on premium increases where aggregate damage to property does not exceed $2,000 applies not only to the imposition of surcharges in accordance with filed merit rating plans, but also to the loss, or a reduction in the amount, of “accident free” or “careful driver” discounts, and to uptiering in accordance with multi-tier rating programs. See Insurance Circular Letter No. 15 (2010). Accordingly, the discussion in this circular letter with respect to loss-of-use costs applies equally to those circumstances.

II. Discussion

The New York State Department of Financial Services (“Department”) learned that several motor vehicle insurers have been unlawfully including loss-of-use costs, such as rental vehicle costs, in calculating the aggregate damage to property after an accident for purposes of Insurance Law § 2335(a) and Insurance Regulation 100. This practice has resulted in tens of thousands of New York policyholders annually collectively paying millions of dollars in premium surcharges after minor accidents that they should not be paying.

The plain meaning of “damage to property,” as used in Insurance Law § 2335(a) and Insurance Regulation 100, is just that: physical damage to property. The costs of a rental vehicle or other incidental expenses are simply not “damage to property.” The New York State Court of Appeals has held that “[a]s the clearest indicator of legislative intent is the statutory text, the starting point in any case of interpretation must always be the language itself, giving effect to the plain meaning thereof.” Majewski v. Broadalbin-Perth Cent. Sch. Dist., 91 N.Y.2d 577, 583 (1998). Here, the controlling language does not include additional loss-of-use costs, such as rental vehicle costs, that may be incurred after an accident has taken place.

Insurance Law § 1113(a), which specifies the various kinds of insurance that are authorized in New York State, provides further support that “damage to property” does not include associated loss-of-use costs. This section states that “[t]he power to do any kind of insurance against loss of or damage to property shall include the power to insure all lawful interests in such property and to insure against loss of use and occupancy, rents and profits resulting therefrom.” (Emphasis added.) This foundational description of the power to write property damage insurance clearly distinguishes “loss of or damage to property” from “loss of use,” confirming that the Insurance Law regards these as distinct aspects of property damage insurance. See Bruesewitz v. Wyeth LLC, 562 U.S. 223, 236 (2011) (“linking independent ideas is the job of a coordinating junction like ‘and’”).

The definition of property damage liability insurance further supports the Department’s interpretation. Insurance Law § 1113(a)(14) defines such insurance to mean “insurance against legal liability of the insured, and against loss, damage or expense incident to a claim of such liability, arising out of the loss or destruction of, or damage to, the property of any other person….” (Emphasis added). Hence, both in property insurance and liability insurance contexts, the law treats incidental expenses as exactly that—incidental and not damage to the property itself.

The legislative history of Insurance Law § 2335(a) and Insurance Regulation 100 confirms that loss-of-use costs, such as rental vehicle costs, were not intended to be included in “damage to property.” Before the Legislature enacted Chapter 277 of the Laws of 2010 and added Insurance Law § 2335(a) to provide for a $2,000 aggregate property damage threshold, Insurance Regulation 100 had tied the minimum property damage threshold for premium surcharges on all noncommercial motor vehicle insurance policies to the compulsory accident reporting threshold in Vehicle and Traffic Law (“VTL”) § 605(a)(1), which is currently, and has been for many years, $1,000 damage to the property of any one person. Because § 2335(a) and Insurance Regulation 100 overlapped with respect to noncommercial motor vehicle liability insurance, the Department subsequently amended Insurance Regulation 100 to be consistent with § 2335(a) instead of having multiple thresholds. In doing so, the Department noted that “[a]ll other provisions of Regulation 100 will remain unchanged and are not impacted by the amendment to Section 2335(a).” Insurance Circular Letter No. 15 (2010).

In choosing to tie the initial “damage to property” threshold to VTL § 605, the Legislature chose a benchmark that shows no indication of inclusion of loss-of-use costs, such as rental vehicle costs. Nothing in the plain language of § 605 or its legislative history suggests that the reporting threshold was intended to include such costs. The new thresholds likewise lack any history that suggests loss-of-use costs should be included in determining the “aggregate damage to property.” The Legislature, in enacting § 2335(a), intended to keep auto insurance affordable for New York consumers. The introducer’s memorandum in support for Chapter 277 explained that “[t]he situation is made more urgent by the escalating cost of auto repairs…. Uni-body construction and new automotive paint technology mean that minor ‘fender-bender’ damage often exceeds the $1,000 reporting threshold. Even a minor fender-bender in a minivan can rack up thousands of dollars in repair costs….” The bill drafters meant for the $2,000 threshold to apply to property damage repair costs, and not loss-of-use costs, such as rental vehicle costs.

III. Conclusion

Accordingly, to comply with Insurance Law § 2335(a) and Insurance Regulation 100, motor vehicle insurers shall not include loss-of-use costs when calculating aggregate damage to property for the imposition of surcharges in accordance with filed merit rating plans, the loss or reduction in amount of “accident free” or “careful driver” discounts, or for uptiering pursuant to multi-tier rating programs. Moreover, motor vehicle insurers shall inform producers with whom they engage in business that such costs shall not be included.

Very truly yours,

Stephen Doody
Deputy Superintendent
Property and Casualty Insurance

¹ Section 2334 uses the term noncommercial private passenger automobile insurance policy and § 2335 uses the term noncommercial motor vehicle insurance policy. As used in this circular letter and Insurance Regulation 100, both terms have the same meaning as a covered policy under Insurance Law § 3425(a)(1), namely a policy issued or issued for delivery in this state, insuring against losses or liabilities arising out of the ownership, operation, or use of a motor vehicle, predominantly used for non-business purposes, when a natural person is the named insured under the policy of automobile insurance.