Ask Tim

When a Carrier Terminates an Agency: Personal Lines Policies

Question from an IIABNY member: Can you please indicate where it is stated that an insured can request a one more year renewal for an automobile insurance policy after the required three successive one year policy periods, and if it also applies to personal lines insurance policies?

Answer: That’s not exactly what the law says. New York Insurance Law Section 3425(j)(1) states:

Where an insurer or an agent who is authorized by such insurer to accept lines of insurance from licensed agents or brokers notifies a licensed agent or broker that its contract or account shall be terminated:…

(B) with respect to an automobile insurance policy subject to this section, the insurer shall offer to continue the policy for any remaining part of the required policy period and, unless the policy is cancelled or non-renewed in accordance with the provisions of either subsection (b), (c) or (f) of this section, it shall, at the specific request of the insured, offer to continue the policy through the terminated agent or broker for three successive one year policy periods which commence within the year following the date of mailing or delivery to the terminated agent or broker of written notice of termination of such contract or account;

As a side note: 

• Subsection (b) permits the insurer to cancel a policy for any reason in the first 60 days.
• Subsection (c) permits the insurer to cancel after day 60 and on renewals for non-payment of premium; 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 auto insured under the policy; and discovery of fraud or material misrepresentation in obtaining the policy or in making a claim under it.
• Subsection (f) permits the insurer to non-renew up to two percent of its auto policies in a given rating territory per calendar year.

What the above provision of the law is saying is that the insurer must offer to finish the auto policy’s required policy period (which is one year – see subsection (a)(8),) and, if the insured requests, offer to renew the policy through the terminated agent for three consecutive one-year policy periods. Here’s an example to illustrate:

• Carrier notifies agent on Dec. 16, 2011 that the appointment is terminated
• Personal Auto Policy finishes the one-year required policy period on March 1, 2012

The carrier must offer to continue coverage under the policy until March 1, 2012. In addition, if the insured requests, it must offer to renew the policy through the terminated agent in 2012, 2013 and 2014. Effective March 1, 2015, it no longer has any obligation to offer a renewal.

With non-auto personal policies, it’s a bit different. The law states:

Where an insurer or an agent who is authorized by such insurer to accept lines of insurance from licensed agents or brokers notifies a licensed agent or broker that its contract or account shall be terminated:(A) with respect to a personal lines insurance policy required to be continued by this section, the insurer shall offer to continue the policy for any remaining part of the required policy period … and the insurer shall offer to continue the policy through the terminated agent or broker for at least its next one year policy period which commences within one year following the date of mailing or delivery to the terminated agent or broker of written notice of termination of such contract or account, and thereafter, at the specific request of the insured, shall offer to continue the policy through such terminated agent or broker for any remaining part of the required policy period …

Here are two illustrations (in more understandable English) to show what this means. First:

• Carrier notifies agent on Dec. 16, 2011 that the appointment is terminated
• Homeowners policy was written new on March 1, 2009, so the three-year required policy period (see subsection (a)(7)) ends on March 1, 2012.

The carrier must offer to continue coverage under the policy until March 1, 2012, it must offer to renew the policy through the terminated agent for the 2012-13 policy period, and, if the insured requests, must offer to renew the policy through the terminated agent for 2013 and 2014. Effective March 1, 2015, it has no obligation to offer a renewal.

Second scenario:

• Carrier notifies agent on Dec. 16, 2011 that the appointment is terminated
• Homeowners policy was written new on March 1, 2010, so the three-year required policy period (see subsection (a)(7)) ends on March 1, 2013.

The carrier must offer to continue coverage under the policy until March 1, 2013, but it has no obligation to offer to renew the policy through the terminated agent after that. This is because the three-year required policy period ends more than a year after the carrier notified the agent of termination.

The rules surrounding a carrier's obligations to insureds when it terminates an agent are complex, but they boil down to when the carrier notifies the agent and when a policy expires.

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Can an Insurer Deny a Claim Because of an Undisclosed Driver?

Question from an IIABNY member: We just had a carrier ask us to have our client sign an acknowledgement that all drivers are listed on the policy. We’ve never seen this before. Have you?  Do you feel that the carrier could deny a claim if a driver is not listed?  Also, what if we don’t return the form? Is that legal reason to cancel the insurance?  I would doubt it.  Please see the attached and let me know what you think. 

Answer: I’ve never seen this before, and it’s interesting the way they’ve phrased it: Using unlisted drivers “may cause coverage disputes.” Here are my thoughts:

• Unless there’s an endorsement to the Business Auto Policy listing all drivers by name, there is no such thing as listing drivers on a policy. The carrier may have a list of drivers in its underwriting file, but that’s not the same as listing drivers on the policy.
• The New York Department of Financial Services (formerly the Insurance Department) has been very clear in the past that it considers “named driver exclusions” that exclude coverage required by law to be against public policy. In other words, a named driver exclusion applying to liability, PIP or UM will not hold up, but an exclusion applying to collision probably will. However, the department has said that the carrier should have the insured sign the exclusion to signify understanding.
• New York insurance law limits the reasons for which a carrier can cancel a commercial auto policy midterm. NY Insurance Law Section 3426(c) states:

After a covered policy has been in effect for sixty days unless cancelled pursuant to subsection (b) of this section, or on or after the effective date if such policy is a renewal, no notice of cancellation shall become effective until fifteen days after written notice is mailed or delivered to the first-named insured and to such insured's authorized agent or broker, and such cancellation is based on one or more of the following:

(1) With respect to covered policies:

(A) nonpayment of premium provided, however, that a notice of cancellation on this ground shall inform the insured of the amount due;

(B) conviction of a crime arising out of acts increasing the hazard insured against;

(C) discovery of fraud or material misrepresentation in the obtaining of the policy or in the presentation of a claim thereunder;

(D) 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;

(E) material physical change in the property insured, occurring after issuance or last annual renewal anniversary date of the policy, which results 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 renewed; or material change in the nature or extent of the risk, occurring after issuance or last annual renewal anniversary date of the policy, which causes the risk of loss to be substantially and materially increased beyond that contemplated at the time the policy was issued or last renewed;

(F) a determination by the superintendent that continuation of the present premium volume of the insurer would jeopardize that insurer's solvency or be hazardous to the interests of policyholders of the insurer, its creditors or the public;

(G) a determination by the superintendent that the continuation of the policy would violate, or would place the insurer in violation of, any provision of this chapter; or

(H) where the insurer has reason to believe, in good faith and with sufficient cause, that there is a probable risk or danger that the insured will destroy, or permit to be destroyed, the insured property for the purpose of collecting the insurance proceeds, provided, however, that:

(i) a notice of cancellation on this ground shall inform the insured in plain language that the insured must act within ten days if review by the department of the ground for cancellation is desired pursuant to item (iii) of this subparagraph (H);

(ii) notice of cancellation on this ground shall be provided simultaneously by the insurer to the department; and

(iii) upon written request of the insured made to the department within ten days from the insured's receipt of notice of cancellation on this ground, the department shall undertake a review of the ground for cancellation to determine whether or not the insurer has satisfied the criteria for cancellation specified in this subparagraph; if after such review the department finds no sufficient cause for cancellation on this ground, the notice of cancellation on this ground shall be deemed null and void.

(2) With respect to that portion of a covered policy providing motor vehicle coverage, in addition to the basis for cancellation set forth in paragraph one of this subsection, suspension or revocation during the required policy period of the driver's license of any person who continues to operate a motor vehicle 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.

With regard to an undisclosed driver, paragraph (1)(D) might apply. Paragraph (2) would apply if an undisclosed driver also does not have a valid license. In either of these cases, the carrier would have to pay the claim but could then legally cancel the policy. I don’t see where failure to return the form would fit within any of these reasons unless the carrier actually inserts that requirement into the policy conditions.

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Ask Tim, Episode #30: Employees' Autos

It's St. Patrick's Day here at the Geek Cave, and I raise a mug of green tea (seriously, it was just tea, unfortunately) for episode #30 of Ask Tim. In this episode, I talk about when employees use their own cars on company business. Key points:

• The employee's personal auto policy provides primary liability coverage for both the employee and employer
• The employee's limits may not be adequate to cover the loss
• The employer's auto policy will provide excess coverage for the employer but not the employee
• To protect their employees, businesses should consider adding the Employees As Insureds endorsement to their auto policies.
• More information is in the IIABNY Research Library under Auto Insurance Issues.

Remember, if you go to a parade tomorrow, and you see St. Patrick, and he sees his shadow, it means we get six more weeks of winter. I think.

Download Ask Tim Episode #30

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Friends Don't Let Friends Drive While Sneezing

Are you driving a car while you have a bad cold? Maybe a bout of flu? You might as well be driving drunk, according to a new study conducted by Young Marmalade, a UK-based car insurance company, and Cardiff University in Wales.

Motor safety experts found that the driving skills of people who were sick were estimated to drop by about 50 percent when compared with those who were healthy. They were more likely to have reduced reaction time and experience a major loss of concentration, so much so that the researchers compared people who were driving under the weather to people who were driving under the influence of “four double whiskeys.”

“This small-scale trial provides a warning for motorists,” Nigel Lacy, director of marketing for Young Marmalade, said in a statement. ” A heavy cold can impair a driver’s mood, concentration and judgment.”

Young Marmalade did not provide the full study despite an ABC News request, nor did Cardiff University, so the full details on the research remain undisclosed. And because of the lack of details, experts noted that it is difficult to discuss the findings in their entirety.

“As a physician with a master’s degree in epidemiology, I wonder about the impact of problems,” said Dr. Martin Bittner, staff physician in the department of infectious disease at the VA Hospital in Omaha, Neb. ”Are we dealing with something that occurs commonly?  Or is it rare?  Those questions, the [release] points out, lack answers.”

via abcnews.go.com

Out of England comes a report claiming that a driver suffering from the common cold is as bad as one who is intoxicated. I checked out Young Marmalade's Web site and did not find any reference to this study, and it appears that ABC News had no better luck, so it's hard to judge the validity of this claim. On its face, it makes some sense: Whenever I've had a bad sneeze behind the wheel, I've always been grateful that it didn't come when other cars or pedestrians were nearby. Still -- as dangerous as drunk driving?

What do you think -- should insurance companies ask about an insured's Nyquil consumption, or check vehicles for the presence of an excess of somewhat-used tissues? Or are the report's conclusions exaggerated? Pour yourself a hot bowl of chicken soup and sound off in the comments.

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Are No-Fault Benefits Taxable?

Question from an IIABNY member: If someone receives wage loss benefits under New York no-fault insurance, do they have to pay income tax on them?

Answer: According to the IRS Web site (look near the bottom of the page): 

Other compensation.   Many other amounts you receive as compensation for sickness or injury are not taxable. These include the following amounts.

• Compensatory damages you receive for physical injury or physical sickness, whether paid in a lump sum or in periodic payments.
• Benefits you receive under an accident or health insurance policy on which either you paid the premiums or your employer paid the premiums but you had to include them in your income.
• Disability benefits you receive for loss of income or earning capacity as a result of injuries under a no-fault car insurance policy. [EMPHASIS ADDED]

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For How Long Can a Carrier Surcharge for an Auto Accident?

Question from an IIABNY member: I have been under the impression that an accident can be surcharged by a carrier for up to 39 months from the date of the accident until the next renewal. One of our carriers told me it is able to surcharge for 64 months. Is the surchargeable period a matter of state law or department regulation and company filings?

Answer: New York law limits the time period for which insurers may surcharge for traffic violations, but I don’t see a similar limit for accidents. New York Insurance Law Section 2335 states:

No insurer authorized to transact or transacting business in this state, or controlling or controlled by or under common control by or with an insurer authorized to transact or transacting business in this state, which sells a policy providing motor vehicle liability insurance coverage in this state shall increase the policy premium in connection with the insurance permitted or required by this chapter solely because the insured or any other person who customarily operates an automobile covered by the policy:…

(b) has been found guilty of a traffic infraction under any of the provisions of the vehicle and traffic law provided, however, that this provision shall not apply to a conviction for a violation which occurred during the thirty-six month period ending on the last day of the fourth month preceding the month of the effective date of the policy if such conviction consisted of:

(1) operating a motor vehicle at a speed of more than fifteen miles per hour in excess of the legal limit;

(2) operating a motor vehicle in excess of the speed limit, or in a reckless manner, where injury or death results therefrom;

(3) operating a motor vehicle in excess of the speed limit, or reckless driving, or any combination thereof, on three or more occasions;

(4) operating a motor vehicle while intoxicated or impaired by the consumption of alcohol;

(5) operating a motor vehicle while impaired by the use of a drug, within the meaning of section one thousand one hundred ninety-two of the vehicle and traffic law;

(6) homicide or assault arising out of the use or operation of a motor vehicle, or criminal negligence in the use or operation of a motor vehicle resulting in the injury or death of another person, or use or operation of a motor vehicle directly or indirectly in the commission of a felony;

(7) operating a motor vehicle while seeking to avoid apprehension or arrest by a law enforcement officer;

(8) filing or attempting to file a false or fraudulent automobile insurance claim, or knowingly aiding or abetting in the filing or attempted filing of any such claim;

(9) leaving the scene of an incident without reporting;

(10) filing a false document with the department of motor vehicles, or using a license or registration obtained by filing a false document with the department of motor vehicles;

(11) operating a motor vehicle in a race or speed test;

(12) knowingly permitting or authorizing an unlicensed driver to operate a motor vehicle insured under the policy;

(13) operating a motor vehicle insured under the policy without a valid license or registration in effect, except when the person convicted had possessed a valid license or registration which had expired and was subsequently renewed, or during a period of revocation or suspension thereof, or in violation of the limitations applicable to a license issued pursuant to article twenty-one or article twenty-one-a of the vehicle and traffic law; or

(14) two or more moving violations of any other provision of the vehicle and traffic law;

So, if a policy will be effective on January 1,2012,  the insurer may surcharge for convictions for violations that occurred from Oct. 1, 2008 through Sept. 30, 2011. However, New York Insurance Regulation 100 does not place a time limit on surcharges for accidents. It appears that any time limitation for accidents would result from a carrier’s rate filing.

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What Does the Motorcycle PIP Endorsement Cover?

Question from an IIABNY member: We've had many insureds ask about Personal Injury Protection coverage for motorcycle, and our understanding was that no such coverage was afforded to the operator or passengers. We have seen pedestrian PIP coverage on policies and are not even clear how that works, as we've been lucky enough not to have a loss pertaining to that, and are not big on motorcycle insurance anyway. Recently, however, we had an insured get into an accident while driving his motorcycle. We insure his auto but not his motorcycle. He had a passenger behind him on the bike and was hurt when he swerved to avoid getting hit by another car. The other vehicle's policy paid out on liability and property damage to the bike, but the limits have since been exhausted and our insured still has lost wages and medical expenses to worry about. He thought he had PIP coverage on his motorcycle insurance, but his agent told him he only had pedestrian PIP coverage and that his auto insurance company would have to pay out for lost wages and medical expenses through uninsured/underinsured coverage. Is this true?

Answer: The other agent is correct. The PIP motorcycles endorsement provides pretty limited coverage. The first two paragraphs of Section I state just how limited the coverage is:

Mandatory Personal Injury Protection

The Company will pay first-party benefits to reimburse for basic economic loss sustained by an eligible injured person on account of personal injuries caused by an accident arising out of the use or operation of the insured motorcycle. This coverage applies only to motorcycle accidents which occur during the policy period and within the State of New York.

Eligible Injured Person

An eligible injured person is any person who sustains a personal injury arising out of the use or operation of the insured motorcycle while not occupying the insured motorcycle, any other motorcycle or a motor vehicle.

Therefore, a person can collect benefits under this endorsement if he: 1) sustains an injury arising out of the use or operation of the insured motorcycle; 2) was not riding the motorcycle; 3) was not riding another motorcycle or any other motor vehicle; and 4) was in New York. Basically, it covers pedestrians in New York. Cross the state line into Connecticut and even they don’t have coverage. The insured driver and passengers have no coverage under this endorsement. I agree with the other agent – the underinsured motorist coverage is the next logical place to look for coverage.

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Order in the Court: Labor Law, Deadlines

Lots of interesting decisions have been coming out of the New York appellate courts recently.

• Last February, the New York Supreme Court Appellate Division, Second Department ruled that the federal Longshore and Harbor Workers Compensation Act does not prevent a legal action under New York Labor Law Sections 240 and 241 against a party who is neither a vessel owner nor the injured worker's employer. These sections of the Labor Law are, of course, New York's infamous "scaffolding law," which makes owners and general contractors of projects absolutely liable for injuries involving a height elevation when the injured worker was not given certain adequate safety devices.
• The First Department ruled in late October that a user's privacy-protected Facebook content is not necessarily safe from being discovered as evidence in a legal action. 
• An insurer's failure to promptly deny a liability claim based on late notice of loss prevented it from obtaining a default judgment against its insured.
• Another insurer that did promptly deny a liability claim for late notice lost anyway because there is a question as to whether its insured had a reasonable belief that it was not liable for the loss.
• An insurer's letter to a hospital denying a claim for no-fault benefits "pending adjuster's review" and "investigation" was not sufficient to meet the law's 30-day deadline for paying or denying a claim. 

The moral: Claim adjusters, deny your claims on time.

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2 Minutes With Tim: Negligence

If a driver gets sick behind the wheel and causes an accident, does his insurance company have to pay for the damage another driver suffered?

Download 2 Minutes With Tim: Negligence

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Pollution Coverage in the New York Business Auto Policy

Question: We understand that pollution is not excluded under the Business Auto in NYS.  For example, if a fuel dealer is delivering fuel or has an accident, the pollution liability would not be excluded as it can be in other states. 

Many contractors have mobile equipment at job sites.  They put portable fuel tanks in the bed of pick up trucks and go to the job sites to refuel the equipment.  We are questioning pollution liability from this situation.  My first thought is that since the tanks are portable equipment, they would be covered under the CGL and not BA.  However, since the fueling operation applies to unloading of a vehicle, perhaps there could be coverage. 

We would appreciate your input.

Answer: In the ISO Business Auto Policy, CA 00 01 03 10, SECTION II – LIABILITY COVERAGE, A. Coverage, the insuring agreement states: 

We will pay all sums an "insured" legally must pay as damages because of "bodily injury" or "property damage" to which this insurance applies, caused by an "accident" and resulting from the ownership, maintenance or use of a covered "auto". 

We will also pay all sums an "insured" legally must pay as a "covered pollution cost or expense" to which this insurance applies, caused by an "accident" and resulting from the ownership, maintenance or use of covered "autos". However, we will only pay for the "covered pollution cost or expense" if there is either "bodily injury" or "property damage" to which this insurance applies that is caused by the same "accident". [EMPHASIS ADDED] 

We have the right and duty to defend any "insured" against a "suit" asking for such damages or a "covered pollution cost or expense". However, we have no duty to defend any "insured" against a "suit" seeking damages for "bodily injury" or "property damage" or a "covered pollution cost or expense" to which this insurance does not apply. We may investigate and settle any claim or "suit" as we consider appropriate. Our duty to defend or settle ends when the Liability Coverage Limit of Insurance has been exhausted by payment of judgments or settlements.

All business auto policies issued in New York contain the equivalent of ISO endorsement CA 01 12 04 09, New York Changes in Business Auto, Business Auto Physical Damage, Motor Carrier and Truckers Coverage Forms. That endorsement changes the definition of “covered pollution cost or expense” to state: 

"Covered pollution cost or expense" means any cost or expense arising out of: 

a. Any request, demand, order or statutory or regulatory requirement; or 

b. Any claim or "suit" by or on behalf of a governmental authority demanding that the "insured" or others test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of "pollutants". 

As you pointed out, the endorsement also deletes the Pollution Exclusion from the Liability Coverage. 

To see how this applies, suppose a contractor loads a 20-gallon container of gasoline or diesel on the back of a pickup truck for delivery to a job site. While en route to the site, the driver is stung by a bee that flies in through an open window. He loses control, strikes a car that had slowed down for traffic in front of him, and a pile-up ensues. During the collision, the fuel container flies off the back of the truck and breaks when it hits the ground, spilling its contents all over the grassy median. Subsequently, the NYS Department of Environmental Conservation orders the contractor to clean up the spilled fuel and treat the contaminated ground. The Liability Coverage in the BAP should cover the cost of the clean-up and soil treatment because it is a cost arising out an order by a governmental authority and covered property damage occurred as a result of the same accident. 

Now take the same situation, but instead of striking a vehicle, the pick-up veers onto the median and overturns. The only property damaged is the insured’s own truck. In this situation, there is no coverage for the cost of cleaning up the spilled fuel and treating the soil because there was no bodily injury or property damage, covered by the Liability Coverage, caused by the same accident. The driver is probably injured and the insured’s truck has been damaged, but neither of these losses is covered by the Liability Coverage (PIP and Physical Damage are the applicable coverages for those losses.) 

To summarize, the pollution coverage under a New York BAP is tied to the simultaneous occurrence of covered bodily injury or property damage. If there’s no covered BI or PD, there’s no coverage for pollution.

Follow-Up Question: Understood that there has to be an accident to trigger the BA pollution coverage.  

So if the pick up that is hauling the portable fuel tank is in an accident and we have a spill there could be coverage, while a spill during the fueling process where no accident involved would not trigger coverage. 

However, since this is not a permanently attached tank, would that perhaps put it the arena of CGL coverage in lieu of BA?  I recall in ’86 when ISO made change that the example of a cherry picker could trigger BA or CGL depending on circumstances.

Answer: I don’t think the CGL policy will cover the loss because of the following in the exclusions:

This insurance does not apply to:… 

f. Pollution

(1) "Bodily injury" or "property damage" arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of "pollutants":…

(c) Which are or were at any time transported, handled, stored, treated, disposed of, or processed as waste by or for any insured or any person or organization for whom you may be legally responsible; or

(d) At or from any premises, site or location on which any insured or any contractors or subcontractors working directly or indirectly on any insured's behalf are performing operations if the "pollutants" are brought on or to the premises, site or location in connection with such operations by such insured, contractor or subcontractor. However, this subparagraph does not apply to:

(i) "Bodily injury" or "property damage" arising out of the escape of fuels, lubricants or other operating fluids which are needed to perform the normal electrical, hydraulic or mechanical functions necessary for the operation of "mobile equipment" or its parts, if such fuels, lubricants or other operating fluids escape from a vehicle part designed to hold, store or receive them. This exception does not apply if the "bodily injury" or "property damage" arises out of the intentional discharge, dispersal or release of the fuels, lubricants or other operating fluids, or if such fuels, lubricants or other operating fluids are brought on or to the premises, site or location with the intent that they be discharged, dispersed or released as part of the operations being performed by such insured, contractor or subcontractor;… [EMPHASIS ADDED] 

Therefore, coverage does not apply to injury or damage arising out of the dispersal of fuel (which certainly falls within the policy’s definition of “pollutants”) if the fuel was transported by the insured or brought to the site by the insured and the fuel was not contained within a vehicle part (i.e., fuel tank.)

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