The Office of General Counsel issued the following opinion on April 28, 2004, representing the position of the New York State Insurance Department.
Re: Cancellation of Excess Line Insurance Policies and Retention of Minimum Earned Premium
Question Presented:
Under the New York Insurance Law, if an insured requests cancellation of an excess line insurance policy on the first day of the policy term, may the unauthorized insurer retain a 25% minimum earned premium?
Conclusion:
Pursuant to N.Y. Ins. Law § 3428(a) (McKinney 2000), if the insured cancels an insurance contract prior to its expiration, the amount of the earned premium to be retained by the insurer, must be calculated in accordance with the insurers rate filing, if any, or by the provisions of the insurance contract. Since an unauthorized insurer is not subject to the rate filing requirements of Article 23 of the Insurance Law, it would be entitled to retain a 25% minimum earned premium, if the insurance policy so provides.
Facts:
The inquirer, an insurance broker, stated that a client of its office signed an application with a different broker on February 20, 2004 for a commercial general liability policy written by an unauthorized insurer through the excess line market. The policy was effective February 23, 2004. The inquirer obtained an insurance quote for a commercial general liability policy from an authorized insurer on February 23, 2004 and the insurer agreed to bind coverage effective February 23, 2004. The insured went back to the excess line broker for a refund of his deposit and to cancel the excess line policy. The excess line broker advised the insured that the insured would not be able to cancel the policy flat and that he would be responsible for a 25% minimum earned premium.
Analysis:
N.Y. Ins. Law § 3428(a) (McKinney 2000) provides as follows:
(a) Except as provided in subsection (d) of this section, [where the premium is financed pursuant to a premium finance agreement], whenever an insurance contract made or issued in this state is cancelled or otherwise terminated by the insured before the expiration thereof in accordance with the terms of such contract, the earned premium to be retained by the insurer shall be determined by the applicable rate filing, if any, otherwise in accordance with the provisions of such contract.
Thus, under circumstances where the insured requests cancellation of an insurance contract prior to its expiration, the earned premium to be retained by the insurer is determined pursuant to the insurers rate filing or, where there is no such filing, by the provisions of the insurance contract. Section 3428(a) is not limited to authorized insurers and thus would apply to an excess line policy.
An unauthorized insurer that writes commercial general liability insurance through the excess line market is not subject to the rate filing requirements of Article 23 of the Insurance Law. Pursuant to N.Y. Ins. Law § 2302(a) (McKinney 2000), Article 23 applies to all kinds of insurance written on risks or operations in New York by an insurer authorized to do business in New York, subject to certain exceptions.
Therefore, the amount of the earned premium to be retained by the insurer would be calculated in accordance with the provisions of the insurance policy. Consequently, in this case, if the policy so provides, the unauthorized insurer would be entitled to retain a 25% minimum earned premium.
For further information you may contact Senior Attorney Pascale Joasil at the New York City Office.