The Office of General Counsel issued the following informal opinion on June 4, 2002,representing the position of the New York State Insurance Department.
Re: Minimum and Deposit Premium
Question Presented:
May an insurer that issues a general liability policy, which isauditable based on the insureds annual sales, charge a minimum and deposit premium 1?
Conclusion:
Whether an authorized insurer that issues a commercial generalliability policy may charge a minimum and deposit premium is dependent upon theinsurers ability to prove that the minimum and deposit premium filed equals the costassociated with issuing the policy, and to cover the expenses of writing the business.
An unauthorized insurer that issues a commercial general liabilitypolicy through a licensed excess line broker pursuant to N.Y. Ins. Law §§ 2105 and 2118(McKinney 2001-2002 Interim Pocket Part) is not prohibited from issuing a minimum anddeposit premium.
Facts:
A licensed insurance broker provided the following scenario withrespect to his inquiry: a property/casualty insurer proposes to issue a commercial generalliability policy that is auditable based on annual sales. The insurer proposes to chargethe insured a deposit premium based on estimated sales for the policy year. If actualsales are higher than the estimated amount, the insured will owe additional premium. Theinsurer proposes, however, that if sales are lower than were estimated, the insurer willnot provide a return premium to the insured because the deposit premium will also be thepolicys minimum premium. The insurance broker made his inquiry with respect to bothauthorized and unauthorized insurers.
Analysis:
In accordance with N.Y. Ins. Law § 2303 (McKinney 2000) regarding thestandard for property/casualty insurance rates, an authorized insurer may charge a minimumearned premium (which may include a minimum and deposit premium) where it has supportableevidence that the minimum earned premium equals the cost associated with issuing thepolicy. The purpose of allowing a minimum earned premium is to permit the insurer torecover the expenses of writing the business should the policy be canceled prior toexpiration, or, in the case of an auditable policy, where the audit results in a premiumlower than the amount needed to cover the cost of writing the policy.
N.Y. Ins. Law § 2302(a) (McKinney 2000) states in relevant part:"This article shall apply to all kinds of insurance written on risks or operations inthis state by an insurer authorized to do business in this state . . . . "(emphasis added.) Thus, unauthorized insurers2 are not subject to Article 23 of the New York Insurance Law. In that regard,an unauthorized insurer that issues a commercial general liability policy through alicensed excess line broker pursuant to N.Y. Ins. Law §§ 2105 and 2118 (McKinney2001-2002 Interim Pocket Part) is not prohibited from issuing a minimum and depositpremium.
For further information you may contact Attorney Sally A. Geisel at theNew York City Office.
1 The Department understands a "minimum and deposit premium"to be the premium that an insured pays as a deposit on the policy, which is also theminimum dollar amount that the insured will be charged as a premium regardless as towhether the policy is written on an auditable basis, or is canceled prior to theexpiration date of the policy.
2 Insurance policies may not be issued or delivered in NewYork by an unauthorized insurer except through a licensed excess line broker pursuant toN.Y. Ins. Law §§ 2105 and 2118 (McKinney 2001-2002 Interim Pocket Part), or through alicensed insurance broker pursuant to the exceptions contained in N.Y. Ins. Law § 2117(b)and (c) (McKinney 2001-2002 Interim Pocket Part).
