Question from an IIABNY member: We have a client with an older vehicle (2000 Ford Focus ZX3) that still has physical damage coverage on it. She has had 3 collision damage claims in the past three years; the following amounts were paid:
- July 2009 - $2,755 – collision
- June 2011 – $2,548 – collision
- Jan 2012 - $1,347 – collision
The insured has not made any repairs to the vehicle. (Damage to different sections of the vehicle)
The carrier's underwriter has advised us that the three losses added together total more than the vehicle's worth (approx $3,900 – good condition) and the vehicle is “technically” a total loss. They want us to tell the insured to sign a request to delete the physical damage coverage mid-term.
Can they do this? (They are non-renewing it for losses later this year.)
Answer: How much of the car is still left?
Kidding aside, New York insurance law does not permit a carrier to reduce the insured’s coverage midterm unless it has the right to cancel, in which case it can reduce coverage in lieu of cancellation. New York Insurance Law Section 3425 applies to personal auto policies. It states in part:
(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. …
(c) After a covered policy has been in effect for sixty days, or upon the effective date if the policy is a renewal, no notice of cancellation shall be issued to become effective … unless it is based on one or more of the following:
(1) With respect to automobile insurance policies:
(A) nonpayment of premium, provided, however, that a notice of cancellation on this ground shall inform the insured of the amount due;
(B) suspension or revocation during the required policy period of the driver's license of the named insured or any other person who customarily operates an automobile insured under the policy, other than a suspension issued pursuant to subdivision one of section five hundred ten-b of the vehicle and traffic law or one or more administrative suspensions arising from the same incident which has or have been terminated prior to the effective date of cancellation; or
(C) discovery of fraud or material mis-representation in obtaining the policy or in the presentation of a claim thereunder…
(d)(1) Unless the insurer, at least forty-five but not more than sixty days in advance of the end of the policy period, mails or delivers to the named insured, at the address shown in the policy, a written notice of its intention not to renew a covered policy, or to condition its renewal upon change of limits or elimination of any coverages, the named insured shall be entitled to renew the policy upon timely payment of the premium billed to the insured for the renewal. The specific reason or reasons for nonrenewal or conditioned renewal shall be stated in or shall accompany the notice. This paragraph shall not apply when the named insured, an agent or broker authorized by the named insured, or an insurer of the named insured, has mailed or delivered written notice to the insurer that the policy has been replaced or is no longer desired.
(2) If an insurer has the right to cancel a policy it may, in lieu of cancellation, condition continuation of such policy upon change of limits or elimination of any coverage not required by law, if written notice of such intention is mailed or delivered to the insured at the address shown in the policy at least twenty days prior to the effective date of such action.
Therefore, if an insurer wishes to reduce the coverage on a renewal or a new policy in effect for more than 60 days, it must send the insured a conditional renewal notice at least 45 but no more than 60 days before the expiration date. If it has the right to cancel for non-payment, suspension or revocation of the license of a regular operator, or fraud or material misrepresentation, then it may reduce coverage instead of cancelling. Your description doesn’t match any of those scenarios.
On the other hand, your insured might want to consider that the actual cash value of her unrepaired car is probably roughly equal to that of a pencil. If she has another collision loss, I’m betting that the appraisal will be under her deductible. She might want to consider going along with the carrier’s suggestion.