What Are an Insurance Carrier’s Obligations for Continuing Policies When It Terminates an Agency?

April 5, 2023

Question: “A long-term carrier partner has recently requested a mutual termination since we entered into an agreement with another carrier to complete a book roll. We agreed in response to the carrier’s second and very substantial rate increase in less than 18 months. We want to know what protections we are afforded in New York State with regards to our contract with the carrier so that we can better understand and prepare for any disruptions the termination may cause.”

Answer: Most of your protections are stated in your contract with the carrier. New York law is largely silent about contractual arrangements between carriers and agents. However, there are provisions in New York law that apply when a carrier terminates an agency. They exist primarily to protect the insurance buyer, not the agent, though there are provisions on commission rates. The rules vary by type of policy.

Personal Lines Other Than Auto

Insurer must offer to continue the policy through the terminated agent for the remainder of its three-year required policy period.
If a new three-year required policy period would begin within one year following the date of mailing or delivery to the terminated agent of written notice of termination, insurer must offer to continue the policy through the terminated agent for at least its next one-year policy period.
If the second bullet point applies and the insured specifically requests, insurer must offer to continue the policy through the terminated agent for the rest of the three-year required policy period.
If the second bullet point does not apply, the insurer may non-renew the policy at the conclusion of the three-year required policy period.

Personal Auto

Insurer must offer to continue the policy for the rest of the one-year required policy period.
It the insured specifically requests, insurer must offer to continue the policy through the terminated agent for three successive one-year policy periods which commence within the year following the date of mailing or delivery to the terminated agent of written notice of termination.
Insurer can still cancel a policy for any reason during the first 60 days or for any reason permitted by law (non-payment, loss of driver’s license, etc.) after the first 60 days or during a renewal period and can non-renew under the “2% rule.”

All Personal Lines

Insurer must accept all personal lines business meeting its then current underwriting standards during the period of 120 days next following the date of mailing or delivery to the agent of written notification of termination.
Insurer must pay the terminated agent the prevailing commission rate for these types of policies that the law requires it to continue.

Commercial Lines Other Than Surety, Workers’ Comp, and Inland and Ocean Marine

Insurer must offer to continue the policy through the terminated agent for the remainder of the one-year required policy period.
Insurer must pay the terminated agent the commission rate that applied to the agent at the time of termination.
Insurer can still cancel a policy for any reason during the first 60 days or for any reason permitted by law (non-payment, loss of driver’s license, material changes in risk, etc.) after the first 60 days or during a renewal period.

Workers’ Comp

The insurer may cancel for any reason with 30 days’ advance notice to the employer (10 days for non-payment of premium).

Surety / Inland and Ocean Marine

Insurer must comply with the cancellation provisions stated in the bond or policy.

New York
INSURANCE LAW — CHAPTER 28 OF THE CONSOLIDATED LAWS
Article 34 — INSURANCE CONTRACTS – PROPERTY/CASUALTY
Ins. Law s 3425 Certain property/casualty insurance policies; cancellation and renewal provisions; agents’ contracts and brokers’ accounts

Former Citations Ins. Law s 167-a; Ins. Law s 167-aa

(a) This section shall apply to covered policies of insurance as defined in paragraphs one, two and three hereof.

(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; provided, however, that the use or operation of the motor vehicle by a transportation network company driver as a TNC vehicle in accordance with article forty-four-B of the vehicle and traffic law or the use or operation of the motor vehicle through a peer-to-peer car sharing program in accordance with article forty of the general business law, shall not be included in determining whether the motor vehicle is being used predominantly for non-business purposes.

(2) “Covered policy” also means a contract of insurance, referred to in this section as “personal lines insurance,” other than a contract of insurance defined in paragraph one hereof, issued or issued for delivery in this state, on a risk located or resident in this state, insuring any of the following contingencies:

(A) loss of or damage to real property used predominantly for residential purposes and which consists of not more than four dwelling units, other than hotels and motels;

(B) loss of or damage to personal property in which natural persons have an insurable interest, except personal property used in the conduct of a business; and

(C) other liabilities for loss of, damage to, or injury to persons or property, not arising from the conduct of a business, when a natural person is the named insured under the policy.

(3) A personal umbrella liability policy shall be considered a “covered policy” under paragraph two, and not paragraph one, of this subsection. …

(7) With respect to personal lines insurance, “required policy period” means a period of three years from the date as of which a covered policy is first issued or is voluntarily renewed.

(8) With respect to automobile insurance, “required policy period” means a period of one year from the date as of which a covered policy becomes effective after first issuance or voluntary renewal. …

(j)(1) Where an insurer or an agent who is authorized by such insurer to accept lines of insurance from licensed agents or brokers notifies a licensed agent or broker that its contract or account shall be terminated:

(A) with respect to a personal lines insurance policy required to be continued by this section, the insurer shall offer to continue the policy for any remaining part of the required policy period and any statutory extension and the insurer shall offer to continue the policy through the terminated agent or broker for at least its next one year policy period which commences within one year following the date of mailing or delivery to the terminated agent or broker of written notice of termination of such contract or account, and thereafter, at the specific request of the insured, shall offer to continue the policy through such terminated agent or broker for any remaining part of the required policy period including statutory extension;

(B) with respect to an automobile insurance policy subject to this section, the insurer shall offer to continue the policy for any remaining part of the required policy period and, unless the policy is cancelled or non-renewed in accordance with the provisions of either subsection (b), (c) or (f) of this section, it shall, at the specific request of the insured, offer to continue the policy through the terminated agent or broker for three successive one year policy periods which commence within the year following the date of mailing or delivery to the terminated agent or broker of written notice of termination of such contract or account;

(C) with respect to all new personal lines and automobile insurance business offered by such terminated agent or broker which is subject to the provisions of this section, the insurer shall accept all such business meeting the insurer’s then current underwriting standards during the period of one hundred twenty days next following the date of mailing or delivery to the agent or broker of written notification of such termination;

(D) the terminated agent or broker shall be entitled to receive commissions on account of all business continued or written pursuant to this paragraph at the insurer’s prevailing commission rate for such lines of insurance; and

(E) the provisions of subparagraph (B) hereof in relation to continuation of coverage for three successive one year policy periods are subject to the rights of the insurer pursuant to subsection (b), (c) or (f) of this section to cancel or non-renew. The provisions of subparagraph (D) hereof in relation to commissions shall not be mandatory after completion of the three one year policy periods provided for in subparagraph (B) hereof.

(2) This subsection shall not apply to an agent who agrees to represent exclusively one insurer or a group of insurers under common management or an agent or broker whose license has been revoked by the superintendent or whose contract or account has been terminated for insolvency, abandonment, gross and willful misconduct, or failure to pay over to the insurer moneys due to the insurer after receipt of a written demand therefor.

Ins. Law s 3426 Commercial lines insurance; cancellation and renewal provisions

(a) Definitions. As used in this section:

(1) ” Covered policy “ means, for purposes of this section, a policy of commercial risk insurance, professional liability insurance or public entity insurance, and shall include any contract, certificate or other evidence of such insurance.

(2) ” Required policy period “ means a period of one year from the date as of which a covered policy is renewed or first issued. …

(k)(1) Subject to the rights of an insurer to cancel a policy pursuant to subsection (b) or (c) of this section, in the event that an insurer terminates the contract or account of a licensed agent or broker, the insurer shall offer in regard to any policy written through such terminated agent or broker to continue each such policy with that agent or broker for any remaining part of the required policy period.

(2) The terminated agent or broker shall be entitled to receive commissions on all business continued pursuant to paragraph one of this subsection at the commission rate applicable to such agent or broker at the time of termination.

(3) This subsection shall not apply to an agent or broker: (A) who exclusively represents one insurer or a group of insurers under common management; (B) whose license has been revoked by the superintendent; or (C) whose contract or account has been terminated due to the agent’s or broker’s insolvency or gross misconduct.

New York
WORKERS’ COMPENSATION LAW — CHAPTER 67 OF THE CONSOLIDATED LAWS Article 4 — SECURITY FOR COMPENSATION
Work. Comp. s 54 The insurance contract

(a) Cancellation and termination of insurance contracts. No contract of insurance issued by an insurance carrier against liability arising under this chapter shall be cancelled within the time limited in such contract for its expiration unless notice is given as required by this section. When cancellation is due to non-payment of premiums and assessments, such cancellation shall not be effective until at least ten days after a notice of cancellation of such contract, on a date specified in such notice, shall be filed in the office of the chair and also served on the employer. When cancellation is due to any reason other than non-payment of premiums and assessments, such cancellation shall not be effective until at least thirty days after a notice of cancellation of such contract, on a date specified in such notice, shall be filed in the office of the chair and also served on the employer; provided, however, in either case, that if the employer has secured insurance with another insurance carrier which becomes effective prior to the expiration of the time stated in such notice, the cancellation shall be effective as of the date of such other coverage. No insurer shall refuse to renew any policy insuring against liability arising under this chapter unless at least thirty days prior to its expiration notice of intention not to renew has been filed in the office of the chair and also served on the employer.

Such notice shall be served on the employer by delivering it to him, her or it or by sending it by mail, by certified or registered letter, return receipt requested, addressed to the employer at his, her or its last known place of business; provided that, if the employer be a partnership, then such notice may be so given to any of one of the partners, and if the employer be a corporation then the notice may be given to any agent or officer of the corporation upon whom legal process may be served; and further provided that an employer may designate any person or entity at any address to receive such notice including the designation of one person or entity to receive notice on behalf of multiple entities insured under one insurance policy and that service of notice at the address so designated upon the person or entity so designated by delivery or by mail, by certified or registered letter, return receipt requested, shall satisfy the notice requirement of this section. Provided, however, the right to cancellation of a policy of insurance in the state fund shall be exercised only for non-payment of premiums and assessments or as provided in section ninety-four of this chapter.

The provisions of this subdivision shall not apply with respect to policies containing coverage pursuant to subsection (j) of section three thousand four hundred twenty of the insurance law relating to every policy providing comprehensive personal liability insurance on a one, two, three or four family owner-occupied dwelling.

In the event such cancellation or termination notice is not filed with the chair within the required time period, the chair shall impose a penalty in the amount of up to five hundred dollars for each ten-day period the insurance carrier or state insurance fund failed to file the notification. All penalties collected pursuant to this subdivision shall be deposited in the uninsured employers’ fund.

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