Question from an IIABNY member: One of my insureds has a businessowners’ policy, issued by an admitted carrier, that is about to expire on June 26, 2012. As of today, the carrier has not sent any type of notice (e.g., nonrenewal or conditional renewal) to the insured regarding the upcoming renewal. However, I was just advised by the underwriter that, since they did not issue such a notice in time, they will issue a 60-day renewal, which will allow them more time to evaluate the risk and issue a notice, if deemed necessary.
My question to you is whether or not the carrier can issue a short-term renewal (effective June 26, 2012) without sending any notice to the insured. I believe they must send a notice but the carrier disagrees.
Answer: No, it cannot issue a short-term renewal. New York Insurance Law Section 3426(d)(2) states:
No covered policy which provides for a policy term of less than one year may be issued, or issued for delivery, in this state, except:
(A) a policy issued to an insured for a seasonal purpose;
(B) a policy issued to cover a specific event or particular project that will be performed in less than one year;
(C) a new policy where the specific term is made to coincide with the term of an insured's already existing policy with the same insurer, with any insurer at the insured's written request or, in the case of an excess liability policy, with different insurers; or
(D) a group property/casualty policy or certificates, policies issued pursuant to a safety group or mass merchandising program, or a medical malpractice or for-hire vehicle policy whose expiration date is common to all other policies issued by an insurer; in any of which events the first policy period may be for a period of less than one year with subsequent renewals requiring at least a one year policy period, and any such policies issued since the effective date of this section may be amended to conform to a common expiration date.
The renewal you’ve described isn’t for the summer; isn’t project-specific (like an Owners and Contractors Protective or Builders’ Risk policy); isn’t designed to make the expiration concurrent with other policies; and isn’t a group P&C policy. Therefore, a 60-day policy is impermissible.
It sounds to me like the carrier needs to send the little-used “alternative renewal notice,” as described in New York Insurance Law Section 3426:
(e)(1) A covered policy shall remain in full force and effect pursuant to the same terms, conditions and rates unless written notice is mailed or delivered by the insurer to the first-named insured, at the address shown on the policy, and to such insured's authorized agent or broker, indicating the insurer's intention:
(A) not to renew such policy; or
(B) to condition its renewal upon change of limits, change in type of coverage, reduction of coverage, increased deductible or addition of exclusion, or upon increased premiums in excess of ten percent (exclusive of any premium increase generated as a result of increased exposure units, pursuant to subsection (d) of this section, or as a result of experience rating, loss rating, retrospective rating or audit), except that with respect to an excess liability policy, the insurer may also, consistent with regulations promulgated by the superintendent, condition its renewal upon requirements relating to the underlying coverage, in which event the conditional renewal notice shall be treated as an effective notice of nonrenewal if such requirements are not satisfied as of the later of the expiration date of the policy or sixty days after mailing or delivery of such notice; or
(C) that the policy will not be renewed or will not be renewed upon the same terms, conditions or rates; such alternative renewal notice must be mailed or delivered on a timely basis and advise the insured that a second notice shall be mailed or delivered at a later date indicating the insurer's intention as specified in subparagraph (A) or (B) of this paragraph and that coverage shall continue on the same terms, conditions and rates as the expiring policy, until the later of the expiration date or sixty days after the second notice is mailed or delivered; such alternative renewal notice also shall advise the insured of the availability of loss information pursuant to subsection (g) of this section and, upon written request, the insurer shall furnish such loss information within ten days consistent with the provisions of such subsection. [EMPHASIS ADDED]
(2) A nonrenewal notice as specified in subparagraph (A), a conditional renewal notice as specified in subparagraph (B), and the second notice described in subparagraph (C) of paragraph one of this subsection shall contain the specific reason or reasons for nonrenewal or conditional renewal, set forth the amount of any premium increase (or, where such amount cannot reasonably be determined as of the time the notice is provided, a reasonable estimate of the premium increase based upon the information available to the insurer at that time), and describe in plain and concise terms the nature of any other proposed changes specified in paragraph one of this subsection. The superintendent shall by regulation specify the permissible range of such estimate (which shall not exceed five percent of the actual amount) and the permissible methods by which an insurer may satisfy the notice requirements of this section.
(3) The notice required by paragraph one of this subsection shall be mailed or delivered at least sixty, but not more than one hundred twenty, days in advance of the expiration date of the policy, except that for an excess liability policy or a policy issued to a jumbo risk, the notice shall be mailed or delivered at least thirty, but not more than one hundred twenty, days in advance of the expiration date of the policy.
(4) Paragraphs one, two and three of this subsection shall not apply when the named insured, an agent or broker authorized by the named insured, or another insurer of the named insured has mailed or delivered written notice that the policy has been replaced or is no longer desired.
(5)(A) If the insurer employs an alternative renewal notice as authorized by subparagraph (C) of paragraph one of this subsection, the insurer shall provide coverage on the same terms, conditions, and rates as the expiring policy, until the later of the expiration date or sixty days after the mailing or delivery of the second notice described in such subparagraph, except to the extent that, prior thereto, the insured has replaced the coverage or elects to cancel, in which event such cancellation shall be on a pro rata premium basis.
(B) In the event that a late conditional renewal notice or a late nonrenewal notice is provided by the insurer prior to the expiration date of the policy, coverage shall remain in effect, at the same terms and conditions of the expiring policy and at the lower of the current rates or the prior period's rates, until sixty days after such notice is mailed or delivered, except to the extent that, prior thereto, the insured has replaced the coverage or elects to cancel, in which event such cancellation shall be on a pro rata premium basis; provided, however, that if the insured elects to renew on the basis of the conditional renewal notice, then such terms, conditions and rates shall govern the policy upon expiration of such sixty day period unless such notice was provided at least thirty days prior to the expiration date of the policy, in which event the terms, conditions and rates set forth in the conditional renewal notice shall apply as of the renewal date.
(C)(i) In the event that a late conditional renewal notice or a late nonrenewal notice is provided by the insurer on or after the expiration date of the policy, coverage shall remain in effect on the same terms and conditions of the expiring policy for another required policy period, and at the lower of the current rates or the prior period's rates unless the insured during the additional required policy period has replaced the coverage or elects to cancel, in which event such cancellation shall be on a pro rata premium basis.
(ii) Every notice mailed or delivered pursuant to this subsection shall advise the insured of the insured's rights to coverage and the duration thereof.
Essentially, the alternative renewal notice buys them a little time, but they still have to make a decision before the current policy expires.
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Posted by: Jacqueline Diaz-Root | July 18, 2012 at 03:52 AM
Jacqueline,
Thank you for the kind words. I'm glad you find the blog useful, and hope you'll come back often.
Posted by: Tim Dodge | July 18, 2012 at 11:32 AM