The Office of General Counsel issued the following opinion on March 5, 2003, representing the position of the New York State Insurance Department.

Insurance Law Section 3425; Automobile Insurance

Questions Presented:

1. Section 3425(f) of the Insurance Law is effective only with regard to automobile insurance policies subject to Section 3425 that were originally issued on or before August 1, 2001. Under Section 3425(f) an insurer may non-renew 2% of the total number of covered automobile policies of the insurer in force at last year-end in each of such insurer's rating territories. For purposes of the 2% rule, how would the total number of policies in force at the year-end of 2001 and succeeding years be calculated?

2. Under Section 3425(f) an insurer may, in addition to non-renewing 2% of in-force polices (as stated above), non-renew or conditionally renew one policy for every two new polices voluntarily written in the same rating territory. For purposes of the "two for one" rule, how would the total number of policies in-force at the year-end of 2001 and succeeding years be calculated?

3. In addition to policies non-renewed or conditionally renewed pursuant to the 2% rule established in § 3425(f), an insurer with an approved multi-tier program may uptier up to 3% of all of its § 3425 automobile insurance business, based upon the total number of covered policies of the insurer in force at last year’s-end in each of the insurer’s rating territories in use in this state. N.Y. Ins. Law § 2349 (McKinney 2000). With regard to the two-for-one rule, to the extent that it is not utilized to non-renew or conditionally renew policies written prior to August 1, 2001, may the two-for-one rule be applied to uptiering policies written prior to August 1, 2001, after the 3% limitation has been reached?

4. N.Y. Ins. Law § 3425(j)(1)(B) (McKinney 2000 and Supp. 2003) requires, with respect to an automobile insurance policy subject to that section, the insurer shall offer to continue the policy for any remaining part of the one year required policy period and, at the specific request of the insured, it shall continue the policy through the terminated insurance agent or broker for a specified period. Must the insured's request be made in writing?

Conclusions:

1. The total number of policies in-force at year-end 2001 and for subsequent years for purposes of the 2% rule, includes both policies that were written prior to August 1, 2001 and policies that were written after August 1, 2001, even though those written after August 1, 2001 are not subject to the 2% rule.

2. Similarly, the total number of policies in-force at year-end 2001 and for subsequent years for purposes of the two-for-one calculation, includes policies written after August 1, 2001, even though those written after August 1, 2001 can not be non-renewed pursuant to the two-for-one rule.

3. Yes. Insurance Regulation 150 (11 NYCRR 154), in section 154.3(e) provides that the two-for-one new business credit in §3425(f)(2) shall apply to the two-percent and three-percent limitations as follows: for every two new policies written, an insurer may either non-renew or conditionally renew one additional policy in excess of the two-percent limitation or may uptier one additional policy in excess of the three percent limitation (emphasis added).

4. With regard to the requirement to continue to offer the policy through a terminated agent or broker under Section 3425(j)(1)(B), an insurer, if it does not receive a specific request from the insured to continue to renew the policy through a terminated agent or broker, may, upon renewal, continue the policy with another agent or broker or directly with the insured and not pay any further commission to the terminated agent/broker. There is no statutorily mandated format or method of service for making this request and therefore the insurer may not require that the request be in writing.

Facts:

The inquirer has requested an advisory opinion not related to any specific fact situation. Accordingly, the inquirer may wish to contact this Department in the future to further elucidate the details of any specific matter that may arise.

Analysis:

The following is a brief history of the amendments to N.Y. Ins. Law § 3425 (McKinney 2000 and Supp. 2003) and its predecessor sections. This history explains the origins of the different required policy periods that exist today.

Chapter 1072 of the Laws of 1974 added a new § 167-a to the Insurance Law, and repealed the former § 167-a and § 167-b. The new § 167-a combined and modified the provisions of the former sections that had dealt with personal lines automobile and non-automobile insurance separately. The new § 167-a provided for a three year required policy period for both non-automobile and automobile insurance policies. Subsequent amendments temporarily extended the three year required policy period.

Subsequently, Chapter 690 of the Laws of 1979 added a new § 167-aa, which dealt exclusively with automobile insurance. While many of the provisions in the new § 167-aa were the same as in § 167-a, the non-renewal provisions were substantially different. Section 167-aa substituted a one year required policy period for the three year required policy period that was in § 167-a. But the one-year required policy periods were subject to the "two-percent rule" while the three year required policy periods were not. The "two-percent rule" limited the number of policies that could be non-renewed or conditionally renewed annually.

In the 1979 amendments, the provisions of § 167-a regarding automobile insurance were not repealed and remained part of that section, but were no longer in effect for automobile policies. Section 167-aa was subject to a sunset provision that provided that, upon the expiration of § 167-aa, the former provisions of § 167-a would be reinstated. In 1984, when the Insurance Law was recodified, the provisions of § 167-a and § 167-aa were combined into § 3425, eliminating the redundant provisions, reuniting the automobile and non-automobile provisions under one section, but automobile policies continued to remain subject to different non-renewal rules than non-automobile policies. Since 1979, except between August 1, 1985 and January 1, 1986, the provisions of § 167-aa, as recodified as part of § 3425, have been extended continuously and remained in effect until last August 2, 2001, when the provisions relating to the automobile insurance provisions of § 167-a were reinstated.

N.Y. Ins. Law § 3425(m)(1) (McKinney 2000 and Supp. 2003) reads, in relevant part, as follows:

Accordingly, the provisions of former §167-aa that were recodified as part of § 3425, including subsection (f), remain applicable for automobile policies initially issued on or before August 1, 2001. Pursuant to N.Y. Ins. Law § 3425(m)(1) (McKinney 2000 and Supp. 2003), for automobile policies originally issued on or before August 1, 2001, the required policy period for automobile insurance is one year, but, the insurer is limited in the number of policies that may be annually non-renewed or conditionally renewed by the "two-percent rule" specified in N.Y. Ins. Law § 3425(f) (McKinney 2000 and Supp. 2003).

For automobile policies that were originally issued on or after August 2, 2001, the provisions of N.Y. Ins. Law § 3425(m) (McKinney 2000 and Supp. 2003) apply. One of the principal differences is that pursuant to § 3425(m), a three year required policy period applies to automobile insurance for policies that are originally issued on or after August 2, 2001, with no limit on the number of policies that may be non-renewed or conditionally renewed at the end of the required policy period.

The inquirer’s first query seeks confirmation of an interpretation of the continued application of the two-percent rule. The inquirer suggests that an insurer may, each year, non-renew or conditionally renew two percent of its business written on or before August 1, 2001 based upon the total number of the insurer’s covered policies in-force at last year-end in each of the insurer’s rating territories in use in this state. In other words, in 2002, the two percent would be based upon the total number of policies in force at the end of 2001, including those written on or after August 2, 2001, but would be applied only to those policies issued on or before August 1, 2001. The Department agrees that this interpretation is consistent with the language of the statute and the related legislative intent. Section 3425(f)(1) states that the non-renewals and conditional renewals are limited to two percent "of the total number of covered policies of the insurer in force at last year-end...." "Covered policy" is defined in Section 3425(a)(1) for automobile insurance and applies to all such policies issued that are subject to § 3425 whether issued on or before or after August 1, 2001.1 "At last year-end" means the end of the next preceding calendar year. N.Y. Ins. Law § 107(a)(9) (McKinney 2000 and Supp. 2003). Hence, the two percent is calculated against the total number of in-force automobile insurance policies at year-end, including both those issued on or before August 1, 2001 and those issued on or after August 2, 2001. Attached is a June 27, 2002 opinion of the Department's Office of General Counsel that reached this conclusion.

The inquirer’s second query concerns the continued application of the two-for-one rule. The inquirer proposes that an insurer may either non-renew or conditionally renew one additional policy written in a territory on or before August 1, 2001, in excess of the two-percent limit, for every two new automobile policies written in that territory on or after August 2, 2001. The Department agrees that this interpretation is consistent with the language of the statute and the related legislative intent. Section 3425(f)(2) states that for every two new automobile policies which the insurer voluntarily writes in each territory, such insurer shall be permitted to "non-renew or conditionally renew one additional automobile policy in that territory in excess of the two percent limit established in paragraph one of this subsection...." It follows from the discussion of the inquirer’s first query above that an insurer may non-renew or conditionally renew one additional policy written in a territory on or before August 1, 2001, in excess of the two percent limit, for every two new automobile policies written on or after August 2, 2001, in that particular territory. This conclusion was also reached in the June 27, 2002 OGC opinion referenced above and attached hereto.

The inquirer’s third query is also with regard to the two-for-one rule. The inquirer asks whether, to the extent that the two percent limit is not utilized to non-renew or conditionally renew policies written prior to August 1, 2001, it may be applied to uptiering policies written prior to August 1, 2001, after the 3% limitation has been reached. N.Y. Ins. Law § 2349 (McKinney 2000) authorizes insurers to offer multi-tier programs, which are programs that provide "...more than one rate level in the same company, for private passenger motor vehicle insurance in the voluntary market...." Subsection (b) of 2349 provides that the § 3425(f)(1) two-percent rule for non-renewals and conditional renewals shall apply for "... risks moved from a tier to a higher-rated tier..." except that the limitation shall be deemed to be three percent for such policies.

N.Y. Comp. Codes R. & Regs. tit. 11 § 154.3 (2000) (Regulation 150) states that the three-percent limit established in N.Y. Ins. Law § 2349(b) (McKinney 2000) is in addition to the two-percent limit established in § 3425(f)(1). Accordingly, an insurer may, each year, non-renew or conditionally renew two percent of its business written on or before August 1, 2001 based upon the total number of the insurer’s covered policies in force at last year’s-end in each of the insurer’s rating territories in use in this state, and may uptier three percent of all of its business, based upon the total number of covered policies of the insurer in force at last year’s-end in each of the insurer’s rating territories in use in this state.

Section 154.3(e) of Regulation provides that the two-for-one new business credit in §3425(f)(2) shall apply to the two-percent and three-percent limitations as follows: for every two new policies written, an insurer may either non-renew or conditionally renew one additional policy in excess of the two-percent limitation or may uptier one additional policy in excess of the three percent limitation.

In response to the inquirer’s question, to the extent that the two-for-one new business credit is not utilized to non-renew or conditionally renew policies written prior to August 1, 2001, it may be utilized to allow the insurer to uptier policies written prior to August 1, 2001, after the 3% limitation on uptiering has been reached.

The inquirer’s fourth query requires interpretation of N.Y. Ins. Law § 3425(j)(1)(B) (McKinney 2000 and Supp. 2003), which concerns a situation where the insurer has terminated a producer (either an agent or broker) in regard to a policy originally written on or before August 1, 2001. It reads as follows:

N.Y. Ins. Law § 3425(j)(1)(B) (McKinney 2000 and Supp. 2003) (Emphasis added.)

The inquirer asks whether the insured's "specific request" must be made in writing. The producer’s rights are subject to the continuation of the policy. An insurer would not be required to continue a policy that was cancelled or non-renewed as otherwise permitted under N.Y. Ins. Law § 3425 (McKinney 2000 and Supp. 2003). However, if the insured chooses to request to continue the policy through the terminated agent or broker, the statute does not require that the request be made in writing. Accordingly, while the insurer may recommend that the request be made in writing, it may not require it.

For further information you may contact Associate Attorney Sam Wachtel at the New York City Office.

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1  "Covered policy" means a contract of insurance, referred to in this section as "automobile insurance", issued or issued for delivery in this state, on a risk located or resident 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. N.Y. Ins. Law § 3425(a)(1) (McKinney 2000 and Supp. 2003).