Relates to clarifying authority of assessment corporations to write liability insurance

Title of bill

An act to amend the insurance law, in relation to the organization of assessment corporations

Purpose

Clarify that assessment cooperative property and casualty insurance companies are authorized to write liability coverage.

Summary of provisions

Sections 1 and 2 amend section 6605 of the Insurance Law to clarify that assessment cooperative property and casualty insurance companies can write liability coverage.

Section 3 is the effective date.

Justification

Assessment cooperatives are property and casualty insurance companies that have been covering thousands of homeowners, renters, small businesses and farms in New York for decades and, in many cases, for over a century. These companies have been writing liability policies that include fire coverage on personal property and/or contents, as well as building structures, for over 50 years with these policies having been approved by the Insurance Department for all of these years. It has recently been stated by some Department of Financial Services' officials that the current law could be interpreted as prohibiting assessments cooperatives from providing essential liability coverage to New Yorkers if the coverage is not tied to a fire insurance policy covering a physical building structure.

This interpretation flies in the face of longstanding insurance industry practice, a practice approved for decades by the state government regulatory agency. This new interpretation is also contrary to good public policy, as recognized by the New York Court of Appeals in Polan v. State Insurance Department, 3 NY 3d 54, 63, where New York's highest court noted that courts are extremely unwilling to infer a legislative intent that would be contrary to longstanding industry practice (in that case, referring to disability insurance practices). In Polan the Court noted that adoption of one interpretation of the statute "would require far-reaching changes in the way the insurance industry does business" and they were therefore "reluctant to infer such a mandate for radical change absent a clearer legislative command." Polan at page 63.

This legislation is intended to restore the law to its long-recognized purpose of allowing assessment cooperative property and casualty insurance companies to write liability coverage. Otherwise, this new interpretation would needlessly cause a tremendous disservice to the policyholders who rely on smaller insurance companies to fill this market need. Forcing assessment coops to stop writing these types of policies would result in the market options shrinking considerably with the policyholders very possibly facing price increases due to the lack of options.

For example, thousands of tenant and homeowner policies would be negatively impacted without any corresponding benefit. Similarly, small businesses who rely on the assessment cooperatives to write liability coverage in Manufacturers & Contractors policies would also be harmed, again without any corresponding benefit. In fact, assessment cooperatives and advance premium cooperatives in New York cover over 71,000 New York small businesses. As a result, this bill is needed to ensure a stable, competitive and vibrant property and casualty insurance market in New York, a market that will benefit New Yorkers.

Legislative history

New bill.

Fiscal implications

None.

Effective date

Immediately.