The New Jersey Supreme Court has held that an umbrella policy issued by an excess/surplus lines insurer was not subject to the state’s automatic renewal statute. In New Jersey, the cancellation or nonrenewal of an insurance policy is strictly controlled by statute, which provides that no policy shall be "nonrenewed" on its expiration date unless a valid written notice of nonrenewal has been sent to the insured. Absent such notice, the insured is entitled to continue the policy until a nonrenewal notice is sent. N.J.A.C. 11:1-20.2(j). New Jersey insurers also must include in their policies boilerplate language that advises insureds of the requirements for notice regarding nonrenewal. N.J.A.C. 11:1-20.3(a). The court held that the statute applies solely to policies issued by licensed carriers admitted to do business in the state.
In Piermont Iron Works, Inc. v. Evanston Ins. Co. (A-19-08) (Jan. 29, 2009), an insured construction contractor sought coverage under its commercial lines excess policy, which contained a standard provision requiring notice to the insured if the insurer intended not to renew the policy. Although the insurer did not send a notice of renewal to the insured, it provided a renewal price quote in response to the insured’s request, to which the insured never responded or made any payment. Upon the expiration of the policy, a construction accident occurred and the insured sought coverage under the Evanston policy. The insurer denied on grounds that the insured's policy had already expired and the insured failed to renew or obtain another policy from the insurer for the relevant coverage period.
The trial court found for the insurer, holding that it had no duty to provide advance notice of a conditional nonrenewal of the policy. The intermediate appellate court reversed, however, finding that even though the insurer would not have normally been subject to the automatic renewal provision of New Jersey’s insurance law (N.J.A.C. 11:1-20.2(j)) because it is a surplus lines carrier, its voluntary assumption of the duty to provide a nonrenewal notice resulted in the regulation's applicability. Thus, it held that the coverage renewed automatically due to lack of notice of nonrenewal.
The New Jersey Supreme Court reversed the intermediate appellate court, finding that surplus lines insurance policies are exempted from the regulatory cancellation and nonrenewal provisions that apply to primary insurers pursuant to New Jersey statute. The Court further held that the insurer's use of a standard form commercial lines policy containing a notice of nonrenewal provision did not show an intent to submit to the automatic renewal penalty regulation.