Split the Payments on a Package, Cancel the Coverages Separately?
Question from an IIABNY member: “My question pertains to a personal lines package policy. I recently had a client renew where the homeowner’s premium is escrowed through the mortgage company, and the insured pays the auto premium monthly. Policy renewal was 3/30/2010. The company sent two bills– one to the insured for the auto and one to the mortgage company for the home. The insured made the auto’s monthly payment on 3/31/10, but the bank did not. The insurer then issued a notice to cancel, effective 4/27/10, to the insured, looking for the full homeowners’ premium and the April installment on the auto side. The insured promptly called their bank and had them overnight a payment for the full premium owed on the home. The insurer received the payment and applied it to the account, BUT will not reinstate until they have the April installment for the auto, since it was included in the cancellation notice.
I thought that in New York State, even on a package policy, companies were required, when a payment was late, to separate billing and issue a notice to cancel for each policy separately, for the premium due on each policy. The company is willing to work with us and waive late fees and reinstate if payment for the auto isn’t in by the 27th, but my point is that it should not need a consideration. The auto never should have been dragged into this cancellation in the first place, and they should receive their regular grace period for making the payment.”
Answer: Let me preface this by saying that this arrangement sounds like an accounting headache. If I were the insured, I’d see if I could stop escrowing the homeowners premium and just pay the combined bills monthly myself. Is this sort of arrangement common?
Now, to answer your question. I found a 2007 N.Y. Insurance Department advisory legal opinion that touches on an aspect of your question:
Although this inquiry references a “package policy”, that phrase does not appear in the Insurance Law. Nevertheless, it is commonly understood to connote a homeowners and automobile policy administered together, often under a single policy number for the convenience of the premium payment. While an insurer may issue a single policy including both coverages, insurers more typically “package” two policies together. Be that as it may, the coverages are easily severable. Accordingly, each separate policy contained in a policy package is considered to be a single, discrete policy that is subject to its appropriate minimum statutory requirements.
If the law considers each part of the package to be a “single, discrete policy”, then it stands to reason that the insurer should treat the payments for each part separately. The bank made a timely payment by paying the homeowners’ premium within 15 days of the insurer issuing the cancellation notice. New York Insurance Law Section 3425(a)(10) states, “Payment to the insurer, or to an agent or broker authorized to receive such payment, shall be timely, if made within fifteen days after the mailing to the insured of a notice of cancellation for nonpayment of premium”. The payments on the auto premium are not delinquent– the next installment is not due until April 27th.
Sect. 3425(a)(10) defines “nonpayment of premium” as “the failure of the named insured to discharge any obligation in connection with the payment of premiums on a policy of insurance or any installment of such premium, whether the premium is payable directly to the insurer or its agent, or indirectly under any premium finance plan or extension of credit”. Given that the insurer has received the homeowner’s premium and the auto premium is not overdue, in my opinion, the insurer has no legal grounds to cancel the policy for non-payment of premium.
The New York Insurance Law and regulations do not govern the payment options that insurers offer, other than that insurers may not unfairly discriminate between similar types of insureds. However, when cancelling a non-commercial policy, insurers must comply with the requirements of Section 3425. If the insurer chooses to issue separate bills for the policy coverages, it should treat them separately when the insured pays them (again, my opinion).
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