Fixes the date of cancellation of financed insurance and provides for a mechanism for cancellation by electronic means; provides that the date of cancellation shall be in the cancellation notice.

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S3653-2011 Actions

• Jan 4, 2012: REFERRED TO BANKS
• Feb 28, 2011: REFERRED TO BANKS

S3653-2011 Memo

BILL NUMBER:S3653

TITLE OF BILL:
An act
to amend the banking law, in relation to cancellation of an insurance
contract upon default

PURPOSE:
To make fixed and certain the date of cancellation of financed
insurance and to provide for a mechanism for cancellation by
electronic means.

SUMMARY OF PROVISIONS:
Section 1 of the bill amends section 571 of the Banking Law to require
premium finance agencies to mail notice of a premium finance
agreement to the insurance carrier whose premiums are being financed.
This provision not only provides notice of the existence of a premium
finance agreement but also establishes a line of communication for
notices of cancellation if needed at a later time.

Section 2 of the bill amends Section 576 of the Banking Law regarding
the process and timing for a premium finance agency to send a
cancellation notice to an insurance company. The bill would allow the
premium finance agency to cancel an agreement by mailing the final
notice of such cancellation to the insurer at the address used
pursuant to Section 571 of the Banking Law (as established in Section
1 above), with a copy to the insured party, The cancellation shall be
effective the later of 12:01 A.M. of the fourth business day
following the mailing of such notice or the cancellation date stated
in the cancellation notice. The bill also allows the notice to be
sent by electronic means where the insurer agrees to accept service
by such method.

JUSTIFICATION:
This bill would establish certainty regarding notices of cancellation
for premium finance agreements. The premium finance industry, as well
as the insurance industry, has, until a recent decision by the Court
of Appeals, recognized the date set forth on the notice of
cancellation by the premium finance agency as the date for
cancellation. This practice has been called into question by the
March 27, 2003 decision of the Court of Appeals in the matter of
Crump v. Unigard Insurance Company.
In that case, the Court held that the date fixed on the premium
finance company's notice was not to be the date of cancellation.
Rather, the date of cancellation was to be the date the notice was
received by the insurer.

This has overturned a long standing practice and understanding as to the
manner in which the industry operates and has left the date of
cancellation, and the existence and continuation of the insurance, to
the hands of the postal deliverer. Thus, there is no way to
ascertain, with any degree of certainty, the date of cancellation of
financed insurance. The insured has no way of knowing what date
insurance coverage was canceled and as of what date he or she must
obtain replacement insurance coverage, Similarly, the finance company
cannot compute the amount of unearned premiums due since it is


uncertain as to the date of cancellation. Therefore, the statute
should be amended to make the date of cancellation fixed and certain.
This will benefit all parties since there will be no question as to
exactly when insurance is canceled, when an insurer ceases to
underwrite a risk, when unearned premiums are due, and when the
insured must obtain replacement coverage.

LEGISLATIVE HISTORY:
Revised version of S.1742/A.6490 of 2005-06, which passed the Assembly
in 2005 and 2006 S.4907 2009-10

FISCAL IMPLICATIONS:
None.

EFFECTIVE DATE:
January 1st next succeeding the date on which this act shall have
become a law.

S3653-2011 Text

                      S T A T E   O F   N E W   Y O R K
  ________________________________________________________________________

                                    3653

                         2011-2012 Regular Sessions

                              I N  SENATE

                              February 28, 2011
                                 ___________

  Introduced  by  Sen.  SMITH  -- read twice and ordered printed, and when
    printed to be committed to the Committee on Banks

  AN ACT to amend the banking law,  in  relation  to  cancellation  of  an
    insurance contract upon default

    THE  PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM-
  BLY, DO ENACT AS FOLLOWS:


    Section 1. Section 571 of the banking law, as amended by chapter  1142
  of the laws of 1969, is amended to read as follows:

    S 571.  Delivery  of copy of premium finance agreement. Before the due
  date of the first instalment payable under a premium finance  agreement,
  the  insurance agent or broker or the premium finance agency holding the
  agreement shall deliver to the insured, or mail to him at his address as
  shown in the agreement, a copy thereof or, if  the  agreement  contained
  any  blank  space when it was signed by the insured and such blank space
  was subsequently filled  in  in  accordance  with  subdivision  four  of
  section  five hundred sixty-seven, a copy of the agreement, as so filled
  in.  THE PREMIUM FINANCE AGENCY SHALL MAIL NOTICE OF A  PREMIUM  FINANCE
  AGREEMENT  TO  THE  INSURANCE CARRIERS WHOSE PREMIUMS ARE BEING FINANCED
  UNDER SUCH PREMIUM FINANCE AGREEMENT WITHIN TEN DAYS OF  THE  DATE  THAT
  THE PREMIUM FINANCE AGREEMENT BECOMES A CONTRACT.
    S 2. Paragraph (d) of subdivision 1 of section 576 of the banking law,
  as  amended  by  chapter  565 of the laws of 1978, is amended to read as
  follows:

    (d) After the notice in paragraph (a) [above] OF THIS SUBDIVISION  has
  expired,  the  premium finance agency may thereafter, in the name of the
  insured, cancel such insurance contract by  mailing  to  the  insurer  a
  notice  of  cancellation  [stating  when  thereafter the policy shall be
  cancelled, and the insurance contract shall  be  cancelled  as  if  such
  notice  of  cancellation  had been submitted by the insured himself, but
  without requiring the return of the insurance contract] TO  THE  ADDRESS
  TO  WHICH  NOTICE OF THE PREMIUM FINANCE AGREEMENT WAS PROVIDED PURSUANT

   EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                        [ ] is old law to be omitted.
                                                             LBD09857-01-1

 S. 3653                             2

  TO SECTION FIVE HUNDRED SEVENTY-ONE OF THIS ARTICLE  OR  TO  AN  ADDRESS
  PROVIDED  BY  AN  INSURANCE  CARRIER  SUBSEQUENT  TO THE NOTICE PROVIDED
  PURSUANT TO SECTION FIVE HUNDRED SEVENTY-ONE OF THIS  ARTICLE.  NOTWITH-
  STANDING  ANY  LAW  TO THE CONTRARY, CANCELLATION SHALL BE EFFECTIVE THE
  LATER OF 12:01 A.M. ON THE FOURTH BUSINESS DAY  FOLLOWING  THE  DATE  OF
  MAILING  OF  SUCH  NOTICE  OF CANCELLATION BY THE PREMIUM FINANCE AGENCY
  WITHOUT REGARD TO THE DATE OF RECEIPT OF SUCH NOTICE BY THE  INSURER  OR
  THE  CANCELLATION  DATE  STATED IN THE CANCELLATION NOTICE.  THE DATE OF
  CANCELLATION SHALL BE STATED IN SUCH CANCELLATION NOTICE.  IN THE  EVENT
  THAT ANY INSURER SHALL AGREE TO ACCEPT THE SERVICE OF NOTICES OF CANCEL-
  LATION BY ELECTRONIC MEANS, THEN THE PREMIUM FINANCE AGENCY MAY TRANSMIT
  SUCH  NOTICE BY ELECTRONIC MEANS AND CANCELLATION SHALL BE EFFECTIVE THE
  LATER OF 12:01 A.M. ON THE FOURTH BUSINESS DAY FOLLOWING TRANSMISSION OF
  SUCH NOTICE OR THE CANCELLATION DATE STATED IN THE CANCELLATION  NOTICE.
  THE  DATE  OF  CANCELLATION SHALL BE STATED IN SUCH CANCELLATION NOTICE.
  THERE SHALL BE NO REQUIREMENT, NOR  SHALL  IT  BE  A  CONDITION  OF  THE
  CANCELLATION,  THAT  THE  INSURANCE CONTRACT BE RETURNED.  A copy of the
  notice of cancellation shall also be mailed to the insured.    PROOF  OF
  MAILING  FOR  ANY  REQUIRED NOTICE PURSUANT TO THIS SUBDIVISION SHALL BE
  SUFFICIENT PROOF OF THE GIVING OF NOTICE.
    S 3. This act shall take effect on the first of January next  succeed-
  ing  the date on which it shall have become a law and shall apply to all
  contracts cancelled on or after such effective date.