North Dakota Laws and Regulations Pertaining to Property Insurance

Outline reference: Property outline: 26 items; also the shared block on the Casualty exam.

This is the most heavily tested chapter in the book: 26 of the 110 Property items. On the Casualty exam, the shared parts (countersignature, binders, cancellation, nonrenewal, agency contracts, release of loss information, and the Guaranty Association) are tested again inside the 30-item casualty law block. Read this chapter for either exam, and Chapter 12 as well for Casualty.

The exam asks for the numbers: how many days, who gives the notice, which exception applies. Learn each number with its exception.

11.1 Which Policies the Cancellation and Nonrenewal Laws Cover

Sections 26.1-39-10 through 26.1-39-21 are the heart of this chapter. Before applying their numbers, check whether the policy is inside them; the scope is narrower than the statute's title, "Property and casualty policies."

Covered. Policies or risks located or resident in North Dakota that insure against: (N.D.C.C. 26.1-39-10)

1. Loss of or damage to real property of not more than four residential units, one of which is the principal residence of the named insured.
2. Loss of or damage to personal property owned by the named insured or used for personal, family, or household purposes within a residential dwelling.
3. Legal liability of the named insured for bodily injury, death, or property damage, except injury or damage arising out of business pursuits other than professional legal or medical services.

In plain terms: homeowners, dwelling, renters, and condominium unit-owner policies and their personal liability, including liability for a lawyer's or doctor's professional services (see 11.4).

Not covered. The sections do not apply to: (N.D.C.C. 26.1-39-10)

• workforce safety and insurance (workers compensation) policies;
• automobile policies (chapter 26.1-40; see Chapter 12);
• inland marine policies;
• policies issued through a residual market mechanism;
• policies primarily insuring risks arising from the conduct of a commercial or industrial enterprise.

Commercial property, businessowners, and commercial auto policies are therefore outside. A farm policy that primarily insures a farming enterprise is commercial; confirm the form with the North Dakota Insurance Department.

Policy period rule. A policy period of less than six months is treated as six months; a period longer than one year, or with no fixed expiration date, is treated as one year. (N.D.C.C. 26.1-39-10)

Definitions that the statute supplies

• Declination: refusal to issue a property policy on a written nonbinding application or request. Offering a different company in the same group, or different terms than requested, counts as a declination. (26.1-39-11(1))
• Nonpayment of premium: failure to discharge any premium obligation, whether payable to the insurer, the producer, or a premium finance plan, including dues or fees that are a prerequisite to coverage. (26.1-39-11(2))
• Renewal: a superseding policy from the same insurer at the end of a policy period, or a certificate or notice extending the term. A change in deductible, coverage, or exclusion leaving substantially equivalent coverage is still a renewal if the new terms are given in the renewal notice. (26.1-39-11(3))
• Termination: cancellation (during the term) or nonrenewal (at the end), in whole or in part. A transfer between companies in the same holding company system, or a renewal with altered terms, is not a termination. (26.1-39-11(4))

A transfer within the group requires notice to the policyholder. (N.D.C.C. 26.1-39-25)

### In North Dakota The cancellation and nonrenewal rules protect personal-lines property and personal liability policies. If a question describes a commercial building, a business policy, or an auto policy, the 26.1-39-13, -14, and -16 numbers (30, 10, 5, and 45 days) are the wrong tool. (N.D.C.C. 26.1-39-10)

11.2 Producer Responsibilities

Countersignature requirement

• There may not be any requirement that an insurance producer resident in North Dakota sign or countersign a policy covering a subject of insurance resident, located, or to be performed in North Dakota.
• Reciprocity exception. If another state requires its resident producer to sign or countersign a policy written by a nonresident producer of that state, then a policy written by a producer resident of that other state (licensed as a nonresident in North Dakota) on a North Dakota subject of insurance must be signed or countersigned in writing by a North Dakota resident producer.
• A policy is not invalid because the required signature or countersignature is missing.
• Commission reciprocity. If the other state requires its resident producer to keep part of the commission on a like policy, the North Dakota resident producer who countersigns keeps an equal pro rata portion of the commission.

(N.D.C.C. 26.1-11-07)

The commissioner shall suspend or revoke the certificate of authority of any insurer that intentionally fails to comply with 26.1-11-07. (N.D.C.C. 26.1-39-09.2)

Binders

A binder is temporary evidence of insurance, effective before the policy is issued. For property binders:

• A binder or contract for temporary property insurance may be made orally or in writing.
• It is deemed to include all the terms of a standard fire insurance policy and all applicable endorsements designated in the binder.
• The standard policy's cancellation clause and the clause fixing the hour of the day coverage starts may be superseded by the binder's express terms.
• A duly authorized binder must be accepted as evidence of coverage required for financing a property purchase; a lender need not accept a renewal or extension of it.
• A producer with express authority to bind property and casualty coverage who orally agrees for an insurer to provide coverage must, if requested, execute and deliver a written memorandum or binder containing the terms of the oral agreement within three business days from the oral agreement.

(N.D.C.C. 26.1-39-23)

The statute sets no maximum life for a binder. The memorandum is required "if requested," and only from a producer with express (not implied) authority to bind.

11.3 Company Responsibilities: Cancellation

Grounds for cancellation

After coverage has been in effect for more than sixty days, or after the effective date of a renewal policy, a notice of cancellation may not be issued unless it is based on at least one of these seven reasons. (N.D.C.C. 26.1-39-13(1))

Two points the exam leans on:

1. Sixty days. The closed list applies once coverage has been in effect more than 60 days or a renewal policy has taken effect. In the first 60 days of a new policy the seven-reason limit does not apply, but the prohibited reasons in 26.1-39-17 (see 11.5) still do.
2. The word "substantially." Grounds d and e require a substantial increase in hazard. A small increase is not a ground.

Renewing a policy does not waive the insurer's right to cancel for a ground that existed before the effective date of the replacement coverage. (N.D.C.C. 26.1-39-21) If the insured has bought equal or broader replacement coverage on the same property, the first insurer may terminate on the replacement's effective date even without following the notice sections; the insured gets a premium refund and written notice. (N.D.C.C. 26.1-39-20)

Notice of cancellation: how many days

A written notice of cancellation must be mailed or delivered to the named insured at the last-known address at least:

• 30 days before the effective date of cancellation; or
• 10 days before the effective date when the reason is nonpayment of premium.

(N.D.C.C. 26.1-39-13(2))

Proof of mailing. Conclusive proof of mailing and receipt on the third calendar day after mailing is established if the insurer produces either (a) a United States Postal Service certificate of mailing to the insured's last-known address; or (b) proof or acknowledgment of USPS mailing to that address using IMb (Intelligent Mail barcode) tracing or a similar first-class mail tracking method that identifies the named insured, the address, and the date of mailing. (N.D.C.C. 26.1-39-13(2))

The three-day rule is about proof. The notice period runs from when the notice is "mailed or delivered," so the exam convention is to count from the mailing date. If a question says to count from receipt, follow the question.

How to count. Add the required number of days to the mailing date. That gives the earliest permitted effective date. The insurer can choose a later date, never an earlier one.

Conditions requiring five days' notice

For policies subject to 26.1-39-10 through -21, the insurer may cancel on five days' written notice to the named insureds if one or more of these conditions exist. Every one is about a building. (N.D.C.C. 26.1-39-14)

Statement of reasons for cancellation

The notice must state the reason, or be accompanied by a statement that on written request of the named insured the insurer will specify the reason in writing. (N.D.C.C. 26.1-39-15)

• The written request must reach the insurer at least 10 days before the effective date of cancellation.
• Under the five-day rule (26.1-39-14), the request is timely if made within 10 days from the effective date.
• The insurer must mail or deliver the reason within 10 days after receipt of the request.

Good-faith information given to the insurer about a reason for termination or declination carries no liability, but not if given in bad faith with malice in fact. (N.D.C.C. 26.1-39-19)

11.4 Company Responsibilities: Nonrenewal

An insurer must renew a policy covered by 26.1-39-10 through -21 unless a written notice of nonrenewal is mailed or delivered to the named insured at the last-known address at least:

• 45 days before the expiration date; or
• 90 days before the expiration date if the policy provides professional liability coverage for legal and medical services.

The same third-calendar-day proof of mailing applies. (N.D.C.C. 26.1-39-16(1))

Reasons. The insurer must include a statement of reasons with the notice or furnish it on the insured's written request. The request must reach the insurer at least 10 days before the expiration date, and the insurer must comply within 10 days after receiving it. (N.D.C.C. 26.1-39-16(2))

No notice needed if the insurer offers to renew. No nonrenewal notice is required when the insurer has given notice of its willingness to renew by mailing or delivering a renewal notice, bill, certificate, or policy. (N.D.C.C. 26.1-39-16(3))

Late or missing notice = deemed renewal. If a required nonrenewal notice is not given, coverage is deemed renewed for the next policy period, on payment of the appropriate premium, on the same terms and conditions, and still subject to the cancellation grounds in 26.1-39-13(1), until the insured has accepted replacement coverage with another insurer or has agreed to the nonrenewal. (N.D.C.C. 26.1-39-16(3))

Records. Proof of mailing a nonrenewal notice, or business records of the notice of willingness to renew, must be kept for at least one year by the insurer or producer who gave it. (N.D.C.C. 26.1-39-16(4))