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.
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.
STATE OF NEW YORK ________________________________________________________________________ 3653 2011-2012 Regular Sessions IN 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 PURSUANTEXPLANATION--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.