New York Court Addresses Cancellation of Policy

In its recent decision in Kinsale Ins. Co. v. OBMP NY, LLC, 2016 U.S. Dist. LEXIS 36737 (S.D.N.Y. Mar. 22, 2016), the United States District Court for the Southern District of New York had occasion to consider what constitutes a effective cancellation of an insurance policy under New York law.

Kinsale insured OBMP, a nightclub operator, under a general liability policy issued for the period January 6, 2014 to September 11, 2014. Shortly after being issued, Kinsale determined that OBMP owed additional premium for the policy, and this was communicated to OBMP’s broker. On March 18, 2014, Kinsale elected to cancel the policy as a result of OBMP’s continued failure to pay the additional premium. A notice of cancellation was mailed that day to OBMP’s last known address. The notice stated that the policy would be cancelled effective March 31, 2014 at 12:01 a.m. The notice was returned to Kinsale marked as undeliverable. OBMP conceded, however, that it received prior oral notice of the March 31, 2014, cancellation and that it had, in fact, attempted to negotiate a payment plan with Kinsale prior to the notice being mailed.

At issue before the court was whether Kinsale had a coverage obligation with respect to a shooting that happened at OBMP’s nightclub on March 31, 2014 at 2:00 a.m. Kinsale maintained that the policy was cancelled two hours prior to the shooting – at 12:01 a.m. – and that as such, it had no defense obligation for an underlying lawsuit arising out of the shooting. OBMP, on the other hand, maintained that under New York law, the policy remained in effect for the entire day of March 31, 2014 and expired at midnight. OBMP further contended that the cancellation did not comply with New York law since notice was not mailed more than fifteen days prior to the cancellation.

Considering OBMP’s first argument, the court acknowledged the decision by New York’s Court of Appeals in Savino v. Merchants Mut. Ins. Co., 406 N.Y.S.2d (1978), where the Court considered a situation in which the insured sent a notice of cancellation to the insurer specifying a cancellation date of December 3, 1974 at 12:01 a.m. The insurer did not receive the notice until December 4, 1974. The Court held that under the circumstances, the cancellation would not take effect until midnight on December 4, 1974 since a request for cancellation by an insured is not effective until receipt by the insurer and in the absence of an express agreement to the contrary, New York law does not recognize fractions of a day.

The Southern District concluded that the Savino case was distinguishable on several grounds. First, OBMP had received oral notice of the cancellation prior to Kinsale actually mailing its notice. The court further noted that the insurance policy stated that in the event of cancellation, Kinsale could select the cancellation date and time, thus avoiding the “fractions of a day” issue raised by the Savino court. The court observed that “New York courts do not reflexively apply a ‘midnight rule’ and do enforce mid-day cancellation times when, as here, the parties agreed to their imposition.”

The court also rejected OBMP’s argument that Kinsale was required to give more than fifteen days notice of its cancellation. While New York Insurance Law § 3426 provides that “no notice of cancellation shall become effective until fifteen days after written notice is mailed or delivered to the first-named insured and to such insured’s authorized agent or broker,” the court pointed out that statute rule by its very terms does not apply to policies written on an excess line basis. Finding that Kinsale was an excess and surplus lines insurer, the court agreed that Kinsale was not required to have complied with the statute, and that Kinsale only needed to give notice of cancellation as required by its policy.