The Office of General Counsel issued the following informal opinion on August 7, 2001, representing the position of the New York State Insurance Department.
Re: Cancellation of Personal Umbrella Liability Policies
Question Presented:
Does N.Y. Ins. Law § 3425 (McKinney 2000) permit the cancellation by the insurer of a personal umbrella liability policy (PUL) because the underlying automobile liability coverage has been cancelled by the policyholder?
Conclusion:
No. N.Y. Ins. Law § 3425 (McKinney 2000) does not permit the insurer to cancel a policyholders personal umbrella liability policy (PUL) because the underlying automobile liability coverage has been cancelled by the policyholder.
Facts:
An insurer is concerned that the cancellation of an underlying policy of a PUL may put the policyholder in jeopardy of unforeseen liability risks and therefore would like to be able to terminate a policyholders PUL when the underlying policy is cancelled by the policyholder.
Analysis:
The insurers interpretation of N.Y. Ins. Law § 3425 (McKinney 2000), that the required policy period of a PUL, when written with an automobile policy is one year, is incorrect.
N.Y. Ins. Law § 3425(a) (McKinney 2000) states, in pertinent part:
(1) Covered policy means a contract of insurance, referred to in this section as automobile insurance, issued or issued for delivery in this state . . .
(2) Covered policy also means a contract of insurance, referred to in this section as personal lines insurance, other than a contract of insurance defined in paragraph one hereof . . .
(3) A personal umbrella liability policy shall be considered a covered policy under paragraph two, and not paragraph one, of this subsection.
(7) With respect to personal lines insurance, "required policy period" means a period of three years from the date as of which a covered policy is first issued or is voluntarily renewed.
(8) With respect to automobile insurance, "required policy period" means a period of one year from the date as of which a covered policy becomes effective after first issuance or voluntary renewal.
There are four exemptions to the above required policy periods stated in N.Y. Ins. Law § 3425(q)(1) (McKinney 2000). None of these exemptions are relevant to your inquiry.
In addition, N.Y. Ins. Law § 3425(c)(2) (McKinney 2000) lists the sole grounds for the cancellation of personal lines insurance before the end of the three year required policy period, none of which are relevant to this inquiry.
Thus, while an insurer may nonrenew a PUL policy at the end of the three year required policy period, the insurer is not permitted to unilaterally terminate a policyholders PUL because the underlying automobile liability coverage has been cancelled by the policyholder. An insurer could, however, advise the insured of any potential liability exposure that the insurer might have by not having underlying coverage.
For further information, you may contact Senior Attorney Meredith S. Kaufer at the New York City Office.