Victor v. Turner

• Decision Date: 23 December 1985
• Citation: 496 N.Y.S.2d 761,113 A.D.2d 490
• Parties: Ida VICTOR, Respondent, v. William TURNER, Defendant; New York Property Insurance Underwriting Association et al., Appellants.
• Court: New York Supreme Court — Appellate Division

Page 761

496 N.Y.S.2d 761

113 A.D.2d 490

Ida VICTOR, Respondent, v. William TURNER, Defendant;

New York Property Insurance Underwriting Association et al.,

Appellants.

Supreme Court, Appellate Division,

Second Department.

Dec. 23, 1985.

Gwertzman, Pfeffer, Toker & Lefkowitz, New York City (Roger, Bruce, Feinman, Jamaica, and Morton Greenwald, New York City, of counsel), for appellants.

Sachs and Spector, P.C., New York City (Joseph J. Pasch, of counsel), for respondent.

Before LAZER, J.P., and GIBBONS, BROWN and O'CONNOR, JJ.

GIBBONS, Justice.

In this action to recover under a fire insurance policy, the question on appeal is whether, in the absence of nonrenewal, a notice of cancellation for nonpayment of premium is required to terminate coverage for the renewal term of a policy protected by Insurance Law § 167-a (now § 3425). We conclude that such notice is required, and therefore affirm.

There are no factual issues on appeal, for the parties, in lieu of trial, submitted the matter to the trial court on the following agreed statement of facts.

Appellants issued a fire insurance policy to plaintiff, Ida Victor, which provided for total coverage of $25,000. The policy term was for one year from December 30, 1977 to December 30, 1978. Prior to the policy expiration, a notice of renewal and premium bill was received by the plaintiff for a renewal policy term of one year. The renewal premium was never paid by the plaintiff; a notice of cancellation was never sent by the appellants. A fire destroyed plaintiff's premises on September 4, 1979. ¹

The trial court awarded judgment to plaintiff, notwithstanding her failure to pay the renewal premium. Construing Insurance Law § 167-a, that court held that issuance of the renewal premium bill caused the policy to be renewed. Thereafter, a cancellation notice pursuant to Insurance Law § 168(5) (now § 3404[e] ) was required to terminate coverage. Accordingly, in the absence of such notice of termination, coverage continued to be effective during the renewal term (including the date of the fire).

On appeal, appellants contend that payment of the renewal premium was a condition necessary to keep plaintiff's policy in force, and that having defaulted in the performance of that condition, her policy simply expired by its terms. Furthermore, there was no contractual or statutory obligation upon appellants to provide plaintiff with notice of the policy's expiration and the concomitant termination of coverage. Appellan further characterize the notice of renewal and premium bill as a mere offer to renew for which there was neither acceptance nor performance by plaintiff. We reject these contentions.

In reaching our decision, we do not consider the provisions of Insurance Law § 168, for the issue may be resolved solely on the language of § 167-a governing renewal and cancellation of certain "covered" ² insurance policies, the legislative history concerning its adoption, and the public policy reflected therein and in decisional law construing the section.

Before addressing the specific subdivisions of Insurance Laws § 167-a which govern the instant dispute, we examine the legislative history and public policy which engendered the adoption of its "guaranteed" and "automatic" renewal provisions (see, State of New York Insurance Department Memorandum, NY Legis Ann, 1974, p 219; Corsa & Son v. Harnett, 92 Misc.2d 569, 571, 400 N.Y.S.2d 1009; Country-Wide Ins. Co. v. Harnett, 426 F.Supp. 1030, 1035, affd. 431 U.S. 934, 97 S.Ct. 2644, 53 L.Ed.2d 252). Section 167-a was adopted in 1974 (L.1974, ch. 1072, § 2). With respect to automobile and other "personal lines" insurance policies (those which cover personal noncommercial loss, e.g., homeowners and fire), coverage could not be nonrenewed or canceled during what was defined as a "[r]equired policy period" of three years, except upon enumerated conditions (see, Insurance Law § 167-a[1][a], [c]; [3]; [5] ).

Prior to the 1974 enactment creating Insurance Law § 167-a, the statutory requirements for nonrenewal of fire insurance policies differed from those for nonrenewal of automobile insurance policies. The distinction was based on perceived differences in the public policies involved. Since there was a greater likelihood that an innocent third party could be adversely affected by a lack of automobile insurance coverage than by an absence of fire insurance, the State had a greater interest in keeping automobile policies in effect absent some overt and deliberate act on the part of the insurer (see, State Farm Mut. Auto. Ins. Co. v. Matthews, 74 A.D.2d 875, 426 N.Y.S.2d 30). The 1974 amendment was designed to make the rules governing the cancellation and renewal provisions of automobile insurance and other personal line policies "more uniform" (see, Preamble, L.1974, ch. 1072). As a result, the same provision covered renewal of both fire and automobile insurance, evidencing an intention on the part of the Legislature to subject fire insurance renewals to the same standards which were applicable to automobile insurance. In a legislative memorandum supporting the bill, the State of New York Insurance Department (hereinafter the Department) stated:

"The purpose of the bill is to simplify and strengthen the protections against cancellations and nonrenewals and placements of coverages which are now set forth in Sections 116-a, 167-a and 167-b of the Insurance Law by repealing those sections and renacting [sic ] a revised Section 167-a, which combines and strengthens the provisions contained in the sections repealed and makes uniform the differing rules which now apply to automobile and other kinds of insurance.

"The new Section 167-a would provide that most insurance policies governing automobiles and personal risks must be renewed for a three year period starting with the issuance of the policy * * * after the effective date of the bill. After a policy had been in effect sixty days, cancellation would be permitted only for the limited reasons set out in the bill (Section 167-a(3)). Individual coverages afforded under a policy could be cancelled or reduced only for the same specified reasons. Section 167-a(4) of the bill would continue the current requirement that notices of nonrenewal be mailed to insureds between 45 and 60 days prior to the anniversary date of the policy.

"Subdivision 5 of the new Section 167-a amends current guaranteed renewability provisions to provide a three year period of guaranteed renewability which is the same for all lines of insurance, during which the insurer may non-renew a policy only for the same reasons for which it might have cancelled the policy" (NY Legis Ann, 1974, pp 219-220).

The Department characterized as "irrelevant" the differences in coverage between automobile and other personal lines insurance contained in the replaced sections of the Insurance Law (NY Legis Ann, 1974, p 220). According to the Department, Insurance Law § 167-a would provide "guaranteed continuity of coverage" for consumers, a service otherwise readily available to commercial insureds, who are in a position to bargain for such coverage. The approach taken, the Department stated, was to require renewal during a three-year period ³ in all circumstances, and then to specify particular reasons for which cancellation would be permitted, the most obvious being nonpayment of premiums (N.Y.Legis.Ann., 1974, p. 221). The statutory language governing nonrenewal and cancellation of automobile and other personal lines insurance was identical (Insurance Law § 167-a[1][c], [2], [3], [4][a], [5][e] ). However, the grounds for cancellation or nonrenewal, understandably differed as certain grounds for cancellation of automobile coverage would simply not apply to other personal lines coverage (e.g., suspension of a driver's license, Insurance Law § 167-a[3][a][ii] ).

The 1974 enactment of Insurance Law § 167-a obviously reflects the broad proposition that insurance industry transactions with consumers are not governed by ordinary contract law. "The business of insurance is one which affects the public interest. Today, as never before, consumers are placing considerable stress upon the protection afforded by insurance. As a result the insurance industry is subjected to minute and specific statutes and regulations. The Legislature specifies how and on what terms the companies and their agents may do business" (Corsa & Son v. Harnett, 92 Misc.2d 569, 571-572, 400 N.Y.S.2d 1009, supra; People v. Formosa, 131 N.Y. 478, 483, 30 N.E. 492). Indeed, commenting on the public policy determination evident in the legislative enactment of Insurance Law § 167-a, we have previously stated:

"Public policy * * * requires that the burden of terminating coverage be placed affirmatively on the insurer, rather than on the insured. An insurance company has superior record-keeping ability, as well as a tangible financial interest in obtaining renewals. Common experience indicates that insured persons do not ordinarily keep careful track as to the expiration date of their insurance policies * * * Consistent with enunciated public policy, as set forth in the statute, mere silence on the part of the insurance carrier cannot operate to terminate its liabilities to the insured" (Zeman v. Zack Agency, 75 A.D.2d 261, 265-266, 429 N.Y.S.2d 444).

In light of the foregoing, it is unlikely that the Legislature, while prescribing guaranteed continuity of coverage through mandatory renewals, and permitting cancellation only upon exclusive and enumerated grounds, would, at the same time, permit insurers to avoid the strictures of § 167-a by the simple expedient of billing a renewal premium and thereafter permitting coverage to terminate without a notice of cancellation or grace period. A close examination of the statutory language reveals that no such loophole exists.

The relevant subdivisions of § 167-a prohibit nonrenewal during the three-year "required policy...