Every agent and broker should watch this video from A.M. Best. Do you agree that this is inevitable? What should insurance producers be doing now to prepare themselves so that their businesses will thrive in the new environment? Sound off in the comments.
(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 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
“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
“non-compliance with recommendations” a valid reason to cancel mid-term (way
after 60 days)? What if the faulty condition existed prior to 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.
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.”
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.