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'Right of review' notification not required when premium finance co. cancels policy.

The question presented on this appeal was whether a premium finance agency, which sought to cancel an assigned risk automobile insurance policy because of the insured's failure to make required payments under the premium finance agreement, had to advise the insured of a particular "right of review" in order for the cancellation to be effective. The Second Department's answer was "no."

Pursuant to an assigned risk automobile insurance policy that was effective April 12, 2002, and issued pursuant to the rules of the New York Automobile Insurance Plan (NYAIP), Travelers Indemnity Company insured Danny Montoya's car. Montoya financed his insurance premiums by entering into a premium finance agreement with an entity known as the Capitol Payment Plan, a premium finance agency. The agreement contained a power of attorney, which authorized Capitol to cancel the insurance policy in the event that Montoya defaulted on the payments that he was required to make under the agreement.

In a notice of cancellation that purportedly was effective on August 1, 2002, Capitol advised Montoya that it had cancelled the insurance policy pursuant to the power of attorney. Montoya had defaulted on his payments under the agreement.

On September 4, 2002, Montoya, who was driving his car in Queens County, collided with a vehicle occupied by Isabel Lopez, John Lopez, and Alba Ramones, who allegedly were injured. After the accident, the Lopezes and Ramones, who maintained that Montoya's car was uninsured, and who sought uninsured motorist coverage in connection with the accident, submitted a demand for arbitration to GEICO, which insured the vehicle they occupied.

On or about December 5, 2002, GEICO, which maintained that Montoya's car was insured under the insurance policy issued by Travelers, commenced the instant proceeding, seeking to permanently stay arbitration. According to GEICO, which named Travelers as a proposed additional respondent, the notice of cancellation was ineffective, as Capitol failed to advise Montoya that he had a right to have the NYAIP's "Governing Committee" review the cancellation of the insurance policy.

The Supreme Court agreed with GEICO that Capitol's failure to include language in the notice of cancellation advising Montoya of a right of review rendered the cancellation of the insurance policy ineffective. Accordingly, the Supreme Court granted the petition, permanently stayed arbitration, and directed Travelers to provide Montoya with automobile coverage.

"We conclude," held the Appellate Division, "that Capitol was not required to advise Montoya of a right of review, and that the insurance policy was effectively cancelled. Indeed, at the time Capitol sent Montoya the notice of cancellation, there was no statute or NYAIP rule requiring a premium finance agency that cancelled an assigned risk automobile insurance policy to advise an insured that the insured had a right to have the NYAIP's Governing Committee review that cancellation....

"Where, as here, an insured fails to make a required payment under a premium finance agreement, and has given the premium finance agency a power of attorney authorizing it to cancel the assigned risk automobile insurance policy, the premium finance agency can do so pursuant to certain procedures set forth in Banking Law [section] 576(1). As part of the process, the agency is required to mail to the insured, inter alia, a cancellation notice. A premium finance agency's failure to comply with these procedures is 'fatal' to the agency's attempt to cancel the policy.

"While Banking Law [section] 576(1)(c) and (d) sets forth detailed requirements for the form and content of the cancellation notice that a premium finance agency must send to the insured, these provisions do not require the agency to advise the insured that he or she has the right to have the NYAIP's Governing Committee review the cancellation of the assigned risk automobile insurance policy. Thus, it would follow that Capitol's failure to advise Montoya of such a right did not violate any statutorily-imposed requirement.

"The question then becomes whether Capitol's failure to advise Montoya that he had the right to have the NYAIP's Governing Committee review the cancellation of the insurance policy violated the NYAIP's rules. If that is the case, the cancellation was ineffective. However, we find that the NYAIP'S rules were not violated.

"In 1987, the NYAIP's rules did not specifically address the issue of whether an insured had the right to have the NYAIP's Governing Committee review a premium finance agency's cancellation of the assigned risk automobile insurance policy. Two years later, the rules were amended, so as to add the following paragraph to Section 18 (1), which is entitled 'Cancellation at Request of Insured':

"'Cancellation by a premium finance company acting pursuant to a power of attorney granted by the insured is deemed to be a cancellation at the request of the insured. An insured has no right of review of such cancellation action by the Governing Committee of the [NYAIP].'

"Then, in 1992, the NYAIP's rules were again amended. The rules in effect at the time Capitol mailed the notice of cancellation at issue were, in relevant part, the same as the rules as amended in 1992. The aforementioned addition to Section 18(1) of the NYAIP's rules, as added in 1989, was removed from that section in 1992. Moreover, Section 18(5), which was entitled 'Cancellation under a Premium Finance Agreement" was added. This addition provided as follows:

"Cancellation of a policy under a Premium Finance Agreement shall be on a pro-rata basis subject to a minimum earned premium on the policy of 10 percent of the gross premium or $60, whichever is greater. An insured has no right of review of such action by the Governing Committee of the [NYAIP].'

"Thus, the NYAIP's rules no longer specifically indicated that 'cancellation' of an assigned risk automobile insurance policy 'by a premium finance company acting pursuant to a power of attorney granted by the insured [was] deemed to be a cancellation at the request of the insured.'

"... First, Section 19 of the NYAIP's rules, which is entitled 'Right of Review and Appeal; provided that 'an insured given notice of cancellation of insurance ... may request that such action be reviewed by the [Governing Committee].' However, this applies only to notice given 'under Section 18, subsection 2' of the rules, which pertains to cancellations by the insurer. Thus, while the rules did indicate that the insured had a right of review of a cancellation, and had to be advised of that right, it is clear that this was only in a situation where the cancellation was made by an insurer, which is governed by a different statutory scheme relating to cancellation than a premium finance agency.

"In addition, Section 18(5) cannot be construed so as to provide that an insured had a right of review of a premium finance agency's cancellation of an assigned risk automobile insurance policy, and had to be advised of such a right. When considering the correspondence between the Insurance Department and the NYAIP surrounding the 1992 amendments to the NYAIP's rules, it is clear that Section 18(5) was added to reflect a 1991 amendment to Banking Law [section] 576, which dealt with the calculation of the refund the insured is to receive upon cancellation. In contrast, nothing in the correspondence indicated any intent to change the rules' previous pronouncement that an insured did not have the right to have a premium finance agency's cancellation of an assigned risk automobile insurance policy reviewed, and did not have to be advised of such a right.

"In summary, we conclude that at the time Capitol cancelled Montoya's insurance policy pursuant to the power of attorney, no statute or NYAIP rule required Capitol to notify Montoya of a right of review of the cancellation. Accordingly, in effect, upon reargument, the Supreme Court should have vacated its prior order and judgment, denied the petition, dismissed the proceeding, and directed the parties to proceed to arbitration."

Matter of Government Empls. Ins. Co. v. Lopez, NYLJ 8/28/07 (2d Dept 2007)
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Title Annotation:COURTSIDE IN NEW YORK
Author:Rogak, Lawrence N.
Publication:Insurance Advocate
Date:Sep 10, 2007
Words:1321
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