OGC Op. No. 03-01-40
The Office of General Counsel issued the following opinion on January 17, 2003, representing the position of the New York State Insurance Department.
Cancellation of a voluntary market commercial property/casualty insurance policy for non-payment of premium
Question Presented
After a notice of cancellation for nonpayment of premium applicable to a voluntary market commercial property/casualty insurance policy has been issued, for the purpose of continuing the policy would the premium be considered paid as of the date it is postmarked or on the date it is received by the insurance agent authorized to receive payment?
Conclusion
The premium is considered paid as of the postmark date unless the cancellation notice specifies otherwise.
Facts
The inquirer is an insurance agent for an insurer. The insurer cancelled a voluntary market commercial property/casualty insurance policy for nonpayment of premium. The insured's broker mailed payment of the premium to the inquirer with a postmark date prior to when the cancellation would become effective, but the inquirer did not receive payment of the premium until after the cancellation became effective. The inquirer was authorized by the insurer to receive such payment. It is not clear if the cancellation notice specified when the premium would be considered paid--i.e., on the date it was postmarked or on the date it was received by the inquirer.
Analysis
N.Y. Ins. Law § 3426(a)(3) (McKinney 2000), which applies to voluntary market commercial property/casualty insurance policies states:
(3) "Nonpayment of premium" means the failure of the named insured to discharge any obligation in connection with the payment of premiums on a policy of insurance or any installment of such premium, whether the premium is payable directly to the insurer or its agent, or indirectly under any premium finance plan or extension of credit. Payment to the insurer, or to an agent or broker authorized to receive such payment, shall be timely for the purpose of this section if made within fifteen days after the mailing to the insured of a notice of cancellation for nonpayment of premium. (Emphasis added)
Thus, if the insured makes payment of the premium within 15 days after the mailing of the notice of cancellation, the insurance agent authorized to receive such payment must accept the payment and the policy must be continued. However, N.Y. Ins. Law § 3426(a)(3) (McKinney 2000) does not address whether a payment has been made as of the date it is postmarked or on the date it is received.
If the bill or notice of cancellation for nonpayment of premium states that premium payment is not made until the insurer receives it, actual receipt by the insurer is required. If the bill or notice of cancellation for nonpayment of premium does not specify the method for payment of the premium, then the premium is considered to be remitted as of the date it is postmarked. This position is supported by the decision in Government Employees Insurance Company v. Solaman, 157 Misc.2d 737, 597 N.Y.S.2d 990, 993 (Sup. Ct. Nassau Co. 1993) construing N.Y. Ins. Law § 3425(a)(10) (McKinney Supp. 2003) which has substantially similar nonpayment of premium language applied to voluntary market personal property/casualty insurance policies:
The well established rule (the "Postal Acceptance Rule") is that in the absence of any limitation or provision to the contrary in the offer [from the insurer to continue the policy], the acceptance of the offer [the insured's payment of the premium] is complete and the contract [insurance policy] becomes binding upon both parties when the offeree [the insured] deposits the acceptance by the payment of premium in the post office.
Accordingly, the premium paid by the insured to continue the voluntary market commercial property/casualty insurance policy after receipt of a notice of cancellation for nonpayment of the premium is considered paid as of the postmark date unless the cancellation notice specifies otherwise.
For further information you may contact Senior Attorney Robert Freedman at the New York City Office.