Surprising interpretation of section 3103
Section 3103 of the NYS Ins. Law states that except as otherwise provided, "any policy of insurance or contract of annuity delivered or issued for delivery in this state in violation of any of the provisions of this chapter shall be valid and binding upon the insurer issuing the same, but in all respects in which its provisions are in violation of the requirements or prohibitions of this chapter it shall be enforceable as if it conformed with such requirements or prohibitions....In any action to recover under the provisions of any policy of insurance or contract of annuity delivered or issued for delivery in this state which the superintendent is authorized by this chapter to approve if in his opinion its provisions are more favorable to policyholders, the court shall enforce such policy or contract as if its provisions were the same as those specified in this chapter unless the court finds that its actual provisions were more favorable to policyholders at the date when the policy or contract was issued." (emphasis added)
This section simply says that regardless of what the policy actually says, it will be binding on the company and interpreted to comply with the law. It seems to contemplate a situation where an approved form does not fully comply with the law and it provides a mechanism to interpret the minimum standards into a contract where on or more may be missing.
The PAR letter, however, states: "In accordance with section 3103 of the Insurance Law it will be necessary to conform any in-force policy forms to the requirements of the Insurance Law unless the actual provisions are deemed by the Department to be more favorable to the policyholder, contract holder or certificate holder." This seems a logical leap from the language quoted above.
This demand for an endorsement states as its authority a section of the law that specifically appears to state that no endorsement is necessary. That seems to be the whole point of the section. Nothing in 3103 states that an endorsement is necessary - in fact, quite the opposite.
The letter also looks to the Department as the body to decide whether a particular provision is more favorable, but 3103 looks primarily to the courts for that. This section appears to recognize that the Superintendent has some discretion in approving policy forms and this section gives a court the authority to look at that exercise of discretion once again if there is an action to recover. It allows a court to revisit the policy language and the law and come to a conclusion about which is more favorable. It deals with courts and actions to recover. It does not deal with administrative reviews of previously approved forms and submissions of endorsements to the Department for review.
While a company may well elect to endorse a previously approved policy or contract to make the changes that the Department requests in a post-approval review - whether they are changes that involve compliance with law or not - that election appears to be just that - an election by the company. The Department certainly has a remedy if it feels that an approved form is unjust, unfair or inequitable - they can withdraw approval after a hearing that finds in their favor. Section 3110 and 3202 provide that authority. But does 3103 provide the authority for the Department to require that a company submit an endorsement as set out in the letter above? I don't think so.
