The Office of General Counsel issued the following informal opinion on August 23, 2004, representing the position of the New York State Insurance Department.
Re: Discontinuation of a property/casualty insurance policy
Questions Presented
1. When a property/casualty insurer discontinues underwriting commercial insurance policies because it sold its division of commercial insurance business to another insurer, what notice must the insurer, which is selling its business, provide to its insureds at the end of each insured's policy term?
2. In the above situation, what rights, if any, do the insureds, whose insurance coverage has been non-renewed by the property/casualty insurer that is selling its business, have to receive coverage that is comparable to that which the discontinued insurer provided, from a subsequent insurer?
3. Does N.Y. Ins. Law § 3426 (McKinney's Supp. 2004) require the subsequent insurer, which purchased the commercial insurance business in the situation described in Question Number One above, to send a non-renewal notice on behalf of the property/casualty insurer that discontinued its business?
4. Does N.Y. Ins. Law § 3426 (McKinney's Supp. 2004) require the subsequent insurer in the situation described in Question Number One above, to send a conditional renewal notice to the new insureds if the new coverage is reduced from that which the original insurer provided?
Conclusions
1. Pursuant to N.Y. Ins. Law § 3426 (McKinney's Supp. 2004), the property/casualty insurer that has ceased underwriting commercial insurance policies because it sold its division of commercial insurance business to another insurance company, must send a non-renewal notice to each of its insureds at the end of each insured's policy term.
2. In this situation, the insureds have no right to receive from a subsequent insurer coverage that is comparable to that which the discontinued insurer provided.
3. No, New York Insurance Law does not require the subsequent insurer to send a non-renewal notice in this situation.
4. No, since the two insurers are not under common control, the New York Insurance Law does not require the subsequent insurer to send a conditional renewal notice if the subsequent coverage is reduced from that which the original insurer provided.
Facts
Several years ago, ABC Insurance Company, (hereinafter ABC), a member of XYZ Insurance Group, (hereinafter XYZ), underwrote a commercial liability and property insurance policy for a golf course. This general liability insurance policy included an endorsement that provided pesticide/herbicide applicator coverage.
According to the inquirer, "[i]n 1998, DEF bought XYZ's commercial division and began the process of converting XYZs Accounts to DEF accounts. The conversion process took some time and did not affect the golf course's coverage until 2001. A non-renewal notice was issued 68 days prior to the expiration date. The notice identified the incumbent insurer as: ABC, c/o DEF." The inquirer quoted the following language from the non-renewal notice: "[t]he reason for nonrenewal is that XYZ and its affiliates have sold their commercial division insurance business to a subsidiary of DEF. In connection with the sale, . . . coverage with XYZ will be discontinued as of the expiration date shown above."
Subsequently, the golf course purchased from DEF Casualty Insurance Company of the DEF Casualty Group, (hereinafter DEF), a general liability insurance policy, and the golf course thought that this policy would include pesticide/herbicide applicator coverage for the golf course. Yet, when the policy was issued, it lacked pesticide/herbicide applicator coverage; however, this was not noticed by either the insurance agent, the staff of the insurance agency or the insured golf course until 2004.
Upon discovering the absence of this coverage, the golf course asked DEF to reinstate it retroactively, but DEF refused. The inquirer position, and that of the insured golf course and of the insurance agent, is that DEF had failed to alert the insurance agent to the deletion of this pesticide/herbicide applicator coverage, and failed to send a conditional renewal notice to the insured, instead relying on the non-renewal notice that had been previously sent.
DEFs position is that it was not required to send a conditional renewal notice because the non-renewal notice issued by ABC is all that is required by N.Y. Ins. Law § 3426 (McKinney's Supp. 2004).
Analysis
N.Y. Ins. Law § 3426 (McKinney's Supp. 2004), which addresses cancellation and renewal provisions of commercial lines property/casualty insurance, states in pertinent part:
(e)(1) A covered policy shall remain in full force and effect pursuant to the same terms, conditions and rates unless written notice is mailed or delivered by the insurer to the first-named insured, at the address shown on the policy, and to such insured's authorized agent or broker, indicating the insurer's intention:
(A) not to renew such policy; or
(B) to condition its renewal upon change of limits, change in type of coverage, reduction of coverage, increased deductible or addition of exclusion, or upon increased premiums in excess of ten percent (exclusive of any premium increase generated as a result of increased exposure units, pursuant to subsection (d) of this section, or as a result of experience rating, loss rating, retrospective rating or audit), . . .
Pursuant to N.Y. Ins. Law § 3426(e)(1)(A)(McKinney's Supp. 2004), if ABC wished to non-renew certain of its insurance policies, ABC was required, at the end of each such insureds policy term, to send a non-renewal notice to each such insured stating that ABC would cease underwriting commercial property/casualty insurance policies. The insurance policies that were subsequently purchased from DEF were entirely new policies and subject to the terms and conditions that DEF was willing to provide. Since ABC and DEF are not under common control, DEF was under no obligation to send a conditional renewal notice to its new insureds who were formerly insureds of ABC stating that the coverage it provided was reduced from the former coverage provided by ABC. Nor was DEF under an obligation to send a non-renewal notice to any of the former insureds of ABC.
For further information one may contact Senior Attorney Susan A. Dess at the New York City Office.