OGC Opinion No. 08-05-10
The Office of General Counsel issued the following opinion on May 21, 2008, representing the position of the New York State Insurance Department.
RE: Cancellation of vehicle-for-hire insurance policy pursuant to premium finance agency’s request
Questions Presented:
1. May an insurer of a vehicle-for-hire give the insured a twenty-five day notice of cancellation after receipt from a PFA of a notice to cancel the policy?
2. Is it sufficient for a notice of cancellation to state that the reason for cancellation is “non-payment of premiums to the finance company,” without providing information regarding the amount of money that is owed to the PFA?
Conclusions:
1. No. When an insurer receives a notice of cancellation from a PFA, which is acting in place of the insured, the insurer is not required to provide the insured with any notice of cancellation. But should the insurer choose to provide such notice, then with respect to vehicles-for-hire, the effective date may not be longer than the twenty-day notice of cancellation that the insurer is required to give to the Commissioner of Motor Vehicles pursuant to N. Y. Vehicle and Traffic Law § 370 (McKinney 2005 & Supp. 2008).
2. Yes. Since the insurer is not required under these circumstances to give the insured notice of cancellation of the policy, the insurer is not subject to the notice requirements set forth in N.Y. Ins. Law § 3426 (McKinney 2006), which governs the cancellation of most commercial lines insurance, including vehicle-for-hire policies.
Facts:
The inquirer represents ABC Insurance Company (“ABC”), an insurer of public automobiles through the New York Insurance Plan. The company also has insured a few public automobiles – specifically commuter vans (or “vehicles-for-hire”) – whose premiums are financed. The inquirer states that a PFA cancelled one of these vehicle-for-hire policies for non-payment of premiums, and there is a disagreement as to the manner in which the cancellation was processed.
The inquirer also states that with respect to standard commercial policies (other than public automobiles), the PFA would submit to ABC a notice of cancellation with an effective date for terminating the policy, and ABC, in turn, would honor the PFA’s request. However, the inquirer notes that ABC treats the cancellation of vehicle-for-hire policies differently. The inquirer indicates that after receiving from the PFA a notice of cancellation for a vehicle-for-hire policy, ABC would issue a notice of cancellation to the insured, effective twenty-five days from the date of the issuance of the notice of cancellation. The inquirer asserts that ABC adopts this procedure with vehicles-for-hire because the insurance company is required to inform the New York State Department of Motor Vehicles (“DMV”) that an insured’s policy will be cancelled within twenty days from the date of the issuance of the notice to the DMV.
The inquirer asks whether ABC’s cancellation procedure for vehicles-for-hire is lawful. The inquirer also asks whether the notice of cancellation that the inquirer provided to the insured – which states that the reason for cancellation is “non-payment of premiums to the finance company,” but does not indicate the amount owed to the premium finance company – is legally sufficient.
Analysis:
Insurance Law § 3428 governs the cancellation of insurance contracts whose premiums are financed. That statute reads in pertinent part as follows:
(c) No authorized insurer shall honor a power of attorney or other authority to cancel an insurance contract executed by an insured in connection with insurance premium financing, except in accordance with section five hundred seventy-six of the banking law. . . .
Pursuant to Section 576 of the New York Banking Law, a PFA may cancel an insurance policy for non-payment only if the premium finance agreement contains a power of attorney or other authority enabling the PFA to cancel any insurance contracts listed in the agreement. The statute also sets forth the procedures for canceling insurance policies, and reads in relevant part as follows:
(a) Not less than ten days written notice shall be mailed to the insured at his last known address as shown on the records of the premium finance agency, of the intent of the premium finance agency to cancel the insurance contract unless the default is cured within such ten day period and that at least three days for mailing such notice is added to the ten day notice. A copy of the notice of intent to cancel shall also be mailed to the insurance agent or broker.
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(c) If the insurance contract or contracts provide motor vehicle liability insurance, every such notice of cancellation shall include in type or print, of which the face shall not be smaller than twelve point, a statement that proof of financial security is required to be maintained continuously throughout the registration period and a notice prescribed by the commissioner of motor vehicles indicating the punitive effects of failure to maintain continuous proof of financial security and actions which may be taken by the insured to avoid punitive effects.
(d) After the notice in paragraph (a) above has expired, the premium finance agency may thereafter, in the name of the insured, cancel such insurance contract by mailing to the insurer a notice of cancellation stating when thereafter the policy shall be cancelled, and the insurance contract shall be cancelled as if such notice of cancellation had been submitted by the insured himself, but without requiring the return of the insurance contract. A copy of the notice of cancellation shall also be mailed to the insured.
(e) All statutory, regulatory and contractual restrictions providing that the insured may not cancel his insurance contract unless he or the insurer first satisfies such restrictions by giving a prescribed notice to a governmental agency, the insurance carrier or individual or a person designated to receive such notice for said governmental agency, insurance carrier or individual, shall apply where cancellation is effected under the provisions of this section. The insurer shall in accordance with said prescribed notice where it is required to give such notice in behalf of itself or the insured shall give notice to such governmental agency, person or individual and it shall determine and calculate the effective date of cancellation from the day it receives the copy of the notice of cancellation from the premium finance agency; provided (1) where the aforementioned prescribed notice requires that more than ten days’ notice be given, the prescribed time for such notice shall control as to the effective date of cancellation, and (2) where less than ten days’ notice is required by the aforementioned prescribed notice the effective date of cancellation shall not be prior to the date contained in the copy of the cancellation notice sent by the premium finance agency.
Notwithstanding that certain provisions of section ninety-three-c of the vehicle and traffic law as added by chapter six hundred fifty-five of the laws of nineteen hundred fifty-six and its successor statute, section three hundred thirteen of the vehicle and traffic law, as enacted by chapter seven hundred seventy-five of the laws of nineteen hundred fifty-nine are consistent with certain of the provisions of this article, those sections shall not be applicable to cancellation of insurance by a premium finance agency under the provisions of this article.
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(g) Upon the cancellation of motor vehicle liability insurance by a premium finance agency, unless a notice of such cancellation is not required by the vehicle and traffic law or by the regulations of the commissioner of motor vehicles, a notice of such cancellation under the provisions of this article, shall be filed by the insurer or insurers with the commissioner of motor vehicles not later than thirty days following the effective date of such cancellation where such a filing is required pursuant to section ninety-three-c of the vehicle and traffic law, as added by chapter six hundred fifty-five of the laws of nineteen hundred fifty-six or its successor statute, section three hundred thirteen of the vehicle traffic law as enacted by chapter seven hundred seventy-five of the laws of nineteen hundred fifty-nine.
The earliest date that an insurer may cancel a policy following a cancellation request from a PFA is the day the insurer receives the notice of cancellation, subject to any pertinent statutory requirements. See Crump v. Unigard Ins. Co., 100 N.Y.2d 12 (2003); Savino v. Merchants Mutual Ins. Co., 44 N.Y.2d 625 (1798). See also Office of General Counsel (“OGC”) Opinion No. 07-07-03 (July 3, 2007); OGC Opinion No. 06-08-02 (Aug. 2, 2006). Additionally, courts have held that where policy premiums are managed through a PFA, strict adherence to the laws governing cancellation must be observed. See, e.g., Apt. Recycle Co. of Manhattan, et al., v. AIU Insurance Company, et al., 10 Misc.3d 1066(A), 814 N.Y.S.2d 599 (Sup. Ct. N.Y. County 2005); Nassau Insurance Company v. Newsome, et al., 86 Misc.2d 942 (Sup. Ct. Queens County 1976), aff’d, 64 A.D.2d 986 (2nd Dep’t 1978).
However, where the policy to be cancelled insures a vehicle-for-hire, the insurer must provide the DMV with twenty days’ advance notice of the cancellation pursuant to Vehicle and Traffic Law § 370. That provision reads in pertinent part as follows:
A corporate surety or an insurance company evidence of whose bond or policy has been so filed, must file a notice in the office of the commissioner that upon the expiration of twenty days from such filing such surety will cease to be liable upon such bond, or in the case of such insurance company, that upon the expiration of such time such policy will be cancelled. . . . (Emphasis added.)
The twenty-day notice therefore necessitates the extension of the effective date of cancellation as prescribed by Banking Law § 576(e). See OGC Opinion dated June 19, 1973 (attached). Further, the courts have held that, with respect to vehicle-for-hire policies, Banking Law § 576 imposes requirements in addition to other applicable statutes governing cancellation when a premium has been financed, and exemption from Vehicle and Traffic Law § 313 (which applies to cancellation by insurance carriers) generally does not eliminate those additional safeguards. See Lumbermens Mut. Cas. Co. v. Berkovic et al., 74 A.D.2d 496 (1st Dep’t 1980). See also OGC Opinion dated March 25, 1981 (attached) (concurring that Banking Law § 576 and Vehicle and Traffic Law § 370 should be read in conjunction with one another, and that both statutes must be followed with respect to any cancellation of a public livery vehicle policy).
Thus, although the effective date of a notice of cancellation on standard commercial automobile policies may run from the receipt by the insurer of a request from a PFA, the law regarding the requirements for cancellation of vehicle-for-hire policies is clear: the insurer must notify the DMV that coverage will terminate under the policy within twenty days of the effective date of the cancellation pursuant to Vehicle and Traffic Law § 370.
However, that statute does not require the insurer also to give a notice of cancellation to the insured under the circumstances presented here, because the notice requirements set forth in Insurance Law § 3426 – which apply when an insurer initiates cancellation of the policy – do not apply where the PFA, acting as the insured, cancels the policy. Moreover, pursuant to Banking Law § 576, only the PFA is required to give the insured notice of an intent to cancel the policy; there is no obligation that the insurer submit a cancellation notice to the insured. Thus, if the insurer elects to provide the insured with a notice of cancellation, the effective date of cancellation may be no later than the date provided to the DMV pursuant to Vehicle and Traffic Law § 370.
Further, because the insurer is under no legal obligation to provide the insured with a notice of cancellation, there is likewise no legal requirement regarding the form that the notice must take. Banking Law § 576 only specifies the information that a PFA must include in its notice of cancellation to the insured. Thus, from the Insurance Department’s perspective, an insurer need not include in its notice of cancellation information regarding the amount owed to the PFA. However, the inquirer may wish to consult the Department of Motor Vehicles for further clarification.
For further information you may contact Senior Attorney Camielle A. Campbell at the New York City office.
(Opinion 2008-05-10)