Insurance Carriers Do The Darndest Things!
[This post appeared in the June 26, 2013, issue of IIABNY Insider]
Every week, IIABNY’s Research Department gives members information about what New York State law allows insurance carriers to do. Often, this information helps members win disputes with their carriers. Here’s a sample of topics that have recently come up:
Question: “If a standard carrier policy is issued in the “free trade zone”, does the carrier still need to follow the New York State conditional renewal notice (chapter 220 rule) if policy coverages are reduced or policy forms removed? Also, if a policy form “edition date only” changes at renewal, is this also subject to conditional notice (Example: CG001 7/98 to CG0001 12/07)? On each of the above, they have to give 90 days’ notice, correct?”
Free Trade Zone policies are subject to New York’s legal requirements for advance notice of non-renewal or conditional renewal. See the Department of Financial Services’ advisory legal opinion of Nov. 19, 2010. Also, in answer to your second question, the department wrote in Circular Letter 1986-14:
“A primary objective of the new law is to maximize understanding and information between insurers and insureds. All notices of cancellation, nonrenewal, or conditional renewal must contain specific reasons explaining the insurer’s action and refer to the availability of loss information. Generic statements such as “underwriting reasons” are no longer sufficient. For example, notices of conditional renewal generated as a result of changes in the basic policy forms (e.g., the new ISO CGL occurrence policy) should be accompanied by an explanatory memorandum or booklet clearly describing all material changes made in the policy.“
New York Insurance Law Section 3426(e) requires insurers to provide at least 60 but no more than 120 days’ advance notice of conditional renewal.
Question: “Is ‘non-compliance with recommendations’ a valid reason to cancel mid-term (way after 60 days)? What if the faulty condition existed before the policy’s inception date? Are there any court decisions on this?”
It may be a valid reason. You didn’t say whether this is a personal or commercial policy, but I’ll assume it’s commercial. After a policy has been in effect for 60 days or if it’s a renewal, the carrier may cancel for only a limited number of reasons. Among them is:
“…after issuance of the policy or after the last renewal date, discovery of an act or omission, or a violation of any policy condition, that substantially and materially increases the hazard insured against, and which occurred subsequent to inception of the current policy period; …”
The carrier could argue that failing to comply with recommendations is an omission that increases the hazard. I think that’s debatable, but it could be what the carrier is hanging its hat on. The failure to comply with recommendations occurred after the policy’s inception, so that could be their argument. I just did a quick search on Google Scholar and did not find any New York court cases relating to cancellation for failure to comply with recommendations.
Question: “I insured two office buildings with Anonymous Insurance Co. When the policy expired and coverage was replaced, it came to our attention that one of the named insureds was not on the carrier’s policy. I asked them to endorse and add the name, and they said NO. Do I have a leg to stand on?”
Unfortunately, probably not. There is no requirement in the law for an insurer to retroactively cover an insured of which it was not aware, unless that insured already fit the definition of “insured” in the policy. If they were aware of the missing named insured, that’s one thing, though there’s still nothing in the law to compel them to endorse the policy. If it was their mistake, then it would be good business to correct it, but they are not legally required to do so.
Question: “I am not sure if other agencies have contacted you on the Anonymous Insurance Co.’s bulletin regarding the Enhanced Actual Cash Value Roof Loss Settlement Endorsement being added to homeowners policies with roofs over 20 years old, but to me this is a reduction in coverage and a conditional renewal notice would need to go out on the third renewal if this endorsement is being added. Do you agree?”
You’re the first to bring this to my attention. It sounds to me like the company is planning to send a conditional renewal notice– the bulletin states:
“Starting June 1, 2013, policyholders with roof surfacing that passes 20 years in age will receive a mailing prior to their renewal, which notifies them that the mandatory ACV Roof Loss Settlement endorsement will be attached to the policy.”
It sounds to me like the carrier intends to provide its insureds with written notice of the change. Furthermore, the notice they plan to send specifically states, “This endorsement modifies your policy due to the age of your roof surfacing”. That meets the requirement of providing the specific reason for conditional renewal.
Regarding whether the carrier can make this change in the middle of the three-year required policy period, that’s a little bit gray. Section 3425(e) states:
“With respect to personal lines insurance policies, no notice of nonrenewal or conditional renewal of a covered policy shall be issued to become effective during the required policy period unless it is based upon a ground for which the policy could have been cancelled.”
Section 3425(c)(2) permits a carrier to cancel a non-auto personal lines policy for six reasons, only two of which are relevant here:
“(D) discovery of willful or reckless acts or omissions increasing the hazard insured against;
(E) physical changes in the property insured occurring after issuance or last annual anniversary date of the policy which result in the property becoming uninsurable in accordance with the insurer’s objective, uniformly applied underwriting standards in effect at the time the policy was issued or last voluntarily renewed…”
The insurer could try to argue that failure to update the roof is a willful omission that increases the hazard. It could also try to argue that the property has physically changed by aging. I don’t know whether the Department of Financial Services would see it that way if the insured filed a complaint, but that may be how the insurer can justify it.
To summarize, it sounds like the carrier is complying with the notice requirement (assuming they meet the time frame requirement), but their ability to make the change in the middle of the required policy period is questionable.
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