Fixes the date of cancellation of financed insurance and provides for a mechanism for cancellation by electronic means

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

Fiscal implications

None.

Effective date

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