The Office of the General Counsel issued the following informal opinion on August 10, 2000, representing the position of the New York State Insurance Department.
RE: Proposed Provisions for use in Reinsurance Contracts
Question Presented:
Are the five proposed provisions acceptable for use in reinsurance contracts involving New York domestic property/casualty insurance companies?
Conclusion:
Provisions A, B, D & E are acceptable as written; C requires modification.
Facts:
A sublicensee of a New York reinsurance intermediary corporation seeks this Departments opinion concerning certain provisions that it plans to include in standard reinsurance contracts that are to be executed by its clients, New York domestic property/casualty companies.
Analysis:
In order for an authorized insurer to take credit for reinsurance, the reinsurance contract must conform to the requirements of N.Y. Ins. Law § 1308 (McKinney 1985 & Supp. 2000) and N.Y. Comp. Codes R. & Regs. tit.11 §125 (1995) (Regulations 17, 20 and 20-A).
N.Y. Ins. Law § 1308(a)(2)(A)(i) (McKinney 1985) provides:
The reinsurance shall be payable by the assuming insurer on the basis of the liability of the ceding insurer under the contracts reinsured without diminution because of the insolvency of the ceding insurer.
N.Y. Ins. Law § 1308(a)(2)(B)(i) (McKinney Supp. 2000) provides in pertinent part that:
Except as provided by subsection (a) of section four thousand one hundred eighteen of this chapter, no such credit shall be allowed any ceding insurer for reinsurance ceded, renewed, or otherwise becoming effective after September first, nineteen hundred fifty-two, unless the reinsurance agreement provides that payments by the assuming insurer shall be made directly to the ceding insurer or its liquidator, receiver or statutory successor, except where: (i) the agreement specifies another payee of such reinsurance in the event of the insolvency of the ceding insurer. . . .
N.Y. Ins. Law § 1308(a)(3) (McKinney 1985) provides in pertinent part that:
Where two or more assuming insurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense shall be apportioned in accordance with the terms of the reinsurance agreement as though such expense had been incurred by the ceding company.
Your proposed contract provides in part as follows:
ARTICLE INSOLVENCY
A. In the event of insolvency and the appointment of a conservator, liquidator, or statutory successor of the Reassured, the portion of any risk or obligation assumed by the Reinsurers shall be payable to the conservator. . . on the basis of claims allowed against the insolvent Reassured by any court of competent jurisdiction or by conservator, liquidator, or statutory successor of the Reassured having authority to allow such claims, without diminution because of that insolvency or because the conservator . . . has failed to pay all or a portion of any claim.
B. Payment by the reinsurer as above set forth shall be made directly to the reassured or to its conservator . . . except where the contract of insurance or reinsurance specifically provides another payee of such reinsurance or except as provided by subsection (a) of section 4118 of the New York Insurance laws in the event of the insolvency of the reassured.
Provisions "A" and "B" comport with N.Y. Ins. Law § 1308(a)(2)(B)(McKinney Supp. 2000) and are acceptable.
Provision "C" describes the details regarding notice requirements in the event of insolvency of the Reassured, and the manner of the charging of the expenses of investigating, interposing of claims, etc. The final sentence is as follows:
However, payments from the Reinsurers shall be made within the period required by the National Association of Insurance Commissioners (NAIC) Accounting Practices and Procedures Manual.
New York presently has no rule addressing this subject but this sentence establishes a criterion that may be inconsistent with possible future New York requirements. Therefore provision "C" must include a disclaimer that such periods will be in accord with New York Insurance Law and Regulations.
Provision "D" provides:
D. Where two or more Reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense shall be apportioned in accordance with the terms of this Contract as though such expense had been incurred by the Reassured.
Provision "D" comports with N.Y. Ins. Law § 1308(a)(3)(McKinney 1985) and is acceptable.
Provision "E" provides:
E. The original insured or policyholder shall not have any rights against the reinsurer which are not specifically set forth in the contract of reinsurance, or in specific agreement between the reinsurer and the original insured or policyholder.
There is no privity of contract between the insured and the reinsurer unless there is a "cut-through" endorsement. Therefore, the limitations of paragraph "E" are acceptable.
For further information, you may contact Associate Attorney Elaine Berger.