Current through Register Vol. 56, No. 18, September 16, 2024
(a) No insurer
may cancel or nonrenew a policy based upon underwriting guidelines which are
arbitrary, capricious or unfairly discriminatory.
(b) The following guidelines are approved for
use by insurers:
1. Nonpayment of
premium;
2. Moral hazard, as
defined at
11:1-20.2(f);
3. Material misrepresentation or
nondisclosure to the company of a material fact at the time of acceptance of
the risk;
4. Increased hazard or
material change in the risk assumed which could not have been reasonably
contemplated by the parties at the time of assumption of the risk;
5. Substantial breaches of contractual
duties, conditions or warranties that materially affect the nature and/or
insurability of the risk;
6. Lack
of cooperation from the insured on loss control matters materially affecting
insurability of the risk;
7.
Fraudulent acts against the company by the insured or its representatives that
materially affect the nature of the risk insured;
8. Loss of or reduction in available
insurance capacity. For the purposes of this paragraph, loss of or reduction in
available insurance capacity shall exist if:
i. An insurance department or court of
competent jurisdiction has declared the insurer to be financially impaired or
unsound, which shall include such actions as suspension, conservatorship,
rehabilitation or liquidation; or
ii. Based upon information set forth in the
insurer's annual statements, the insurer has experienced a significant
deterioration in its financial condition during the most recent annual
statement period resulting in its designation by the National Association of
Insurance Commissioners as being in need of "immediate attention", and the
insurer's:
(1) Ratio of net premium to
surplus to policyholders has gone above four to one and its surplus to
policyholders has fallen below 25 percent of net loss and loss expense
reserves; or
(2) Ratio of net
premium to surplus to policyholders has increased to at least six to one;
or
(3) Ratio of net losses and loss
reserves to surplus to policyholders has increased to at least six to
one.
9.
Material increase in exposure arising out of changes in statutory or case law
subsequent to the issuance of the insurance contract or any subsequent renewal
thereof;
10. Loss of or substantial
changes in applicable reinsurance. For the purposes of this paragraph, loss of
or substantial changes in applicable reinsurance shall be deemed to exist if
any of the following have occurred;
i.
Termination by the reinsurer of treaty or facultative reinsurance affecting the
individual risk or line, class or subclass of insurance, as applicable,
proposed for cancellation and/or nonrenewal; or
ii. Substantial reductions in the amount of
available reinsurance or other changes to such contracts which effectively
prohibit the insurer from providing coverage at the same limits and terms as
the existing policy; or
iii.
Changes in the financial condition of the reinsurer which adversely affect its
ability to honor its obligations. A change in the financial condition of the
reinsurer shall be evidenced by an order issued by an insurance department or
court of competent jurisdiction declaring the insurer to be financially
impaired or unsound, which shall include such actions as suspension,
conservatorship, rehabilitation or liquidation.
11. Failure by the insured to comply with any
Federal, State or local fire, health, safety, building or construction
regulation, law or ordinance with respect to an insured risk which
substantially increases any hazard insured against within 60 days of written
notification of a violation of any such law, regulation or ordinance;
12. Failure by the insured to provide
reasonable and necessary underwriting information to the company upon written
request therefor and a reasonable opportunity to respond; and
13. Agency termination, provided:
i. The insurer documents that replacement
coverage at comparable rates and terms has been provided to the insured, and
the insurer has informed the insured, in writing, of his or her right to
continue coverage with the insurer; or
ii. The insurer has informed the insured, in
writing, of his or her right to continue coverage with the insurer and the
insured has agreed, in writing, to the cancellation or nonrenewal based upon
the termination of his or her appointed agent.
(c) Only the specific language of the
underwriting guidelines as set forth in (b) above is deemed to be approved by
the Commissioner for use in the cancellation and nonrenewal of policies which
are subject to the provisions of this subchapter.
(d) In addition to the approved guidelines
set forth in (b) above, an insurer may use other guidelines for cancellation or
nonrenewal provided such guidelines are not arbitrary, capricious or unfairly
discriminatory.
(e) Any
underwriting guideline or standard premised on adverse loss experience shall be
limited in application to nonrenewals only and shall specifically identify the
type of loss experience which supports and justifies the nonrenewal action.
1. Pursuant to
17:29B-4.1, no inquiry by an
insured for information regarding the insured's homeowners' insurance policy,
or coverage for a particular loss under that policy, shall be categorized as a
claim for purposes of determining adverse loss experience.
2. Pursuant to N.J.S.A. 17:36-5.2 0a, no
insurer authorized to do business in this State shall cancel or non-renew an
insurance policy covering an owner occupied one-to-four family dwelling solely
because of claims or losses due to weather-related damage or a third-party
criminal act committed by someone who is not a resident of the insured
dwelling, unless the claim or loss identifies or confirms an increase in
hazard, a material change in the risk assumed or a breach of contractual
duties, conditions or warranties that materially affect the nature or the
insurability of the risk. However, this paragraph shall not be construed to
prohibit an insurer from offering to continue coverage on different terms and
conditions if the insured fails to reduce the risk of additional or future
claims or losses, either by effecting necessary repairs or taking other
remedial action.
(f) All
underwriting guidelines or standards utilized by the insurer for the
cancellation or nonrenewal of commercial lines coverages which are subject to
the provisions of this subchapter shall be maintained by the insurer in writing
and shall indicate the effective date(s) thereof. An insurer's underwriting
guidelines shall be made available to the Department upon request.
(g) Only those guidelines which are in effect
at the inception date of the original policy or any subsequent renewal of that
policy, as applicable, may be utilized by the insurer to cancel or nonrenew
during that policy period.
(h) The
requirement of (g) above shall not be construed to limit an insurer's ability
to modify from time to time its underwriting guidelines; however the modified
guidelines only may be applied to policies issued or renewed subsequent to the
effective date of such modification.
(i) If the Commissioner finds an underwriting
guideline is being utilized by an insurer in an arbitrary, capricious or
unfairly discriminatory manner, the Commissioner shall issue a preliminary
order prohibiting the use of such a guideline in the proscribed manner and
shall require such insurer to rescind any notice of cancellation or nonrenewal
based on such application of the underwriting guideline which has not yet
become effective pending a hearing. Following the hearing, if the preliminary
order is sustained, the Commissioner shall prohibit further application of the
guideline in the manner found to be arbitrary, capricious or unfairly
discriminatory, except that, if the insurer can demonstrate to the Commissioner
that it will be significantly prejudiced by the proscription, the Commissioner
shall permit the continued application of that guideline, with respect to
policies written prior to the date of preliminary order during a reasonable
run-off period to be specified by the Commissioner and not to exceed three
years. If the preliminary order is not sustained, coverage which has been
extended pending the hearing may be cancelled by the insurer in accordance with
the provisions of
11:1-20.2.
(j) In the event that the Commissioner shall
issue a preliminary order proscribing the manner in which an underwriting
guideline is being used by an insurer, pursuant to (i) above, the insurer may
request an expedited hearing on the Commissioner's preliminary order.
(k) With respect to retrospectively rated
risks and multi-state location risks, insurers shall maintain records of those
policies which are either cancelled or nonrenewed and the reasons upon which
such termination was based.
(l) Nothing in this section
shall prohibit an insurer from cancelling a policy or coverage which has been
in effect for less than 60 days at the time notice of cancellation is mailed or
delivered. Except as may be otherwise provided by statute, such cancellations
shall be subject to the remaining provisions of this subchapter.
