The Office of General Counsel issued the following opinion on June 26, 2001, representing the position of the New York State Insurance Department.
Re: Title Insurers and N.Y. Comp. Codes R. & Regs. tit. 11 § 420.0 420.24 (Reg. 169) (2001)
Question Presented:
Do title insurers have a "customer relationship", as that term is defined in N.Y. Comp. Codes R. & Regs. § 420.3(i)(1) (2001), with their policyholders?
Conclusion:
Yes, unless the conditions described in N.Y. Comp. Codes R. & Regs. § 420.3(i)(2)(ii) (2001) are met.
Facts:
An inquirer stated, in support of its assertion that there is no continuing relationship between a title insurer and its policyholder, that: unless a claim arises, the relationship between a title insurer and its policyholder ceases once the policy is issued; there is no communication or contact between the insurer and the policyholder; and policy issuance is accomplished indirectly through independent title agents, who are one step removed from the insurer.
Analysis:
N.Y. Comp. Codes R. & Regs. tit. 11 § 420.3 (2001) contains the definitions of consumers and customers. Different provisions of the regulation, including the requirement that privacy notices be sent and the timing thereof, apply in accordance with whether an individual is a consumer or a customer.
A customer relationship is defined in N.Y. Comp. Codes R. & Regs. tit. 11 § 420.3(i)(1) (2001) as:
a continuing relationship between a consumer and a licensee under which the licensee provides one or more insurance products or services in this State to a consumer that are to be used primarily for personal, family, or household purposes.
Pursuant to N.Y. Comp. Codes R. & Regs. tit. 11 § 420.3(i)(2)(i)(a) (2001), a consumer has a continuing relationship with a licensee if:
The consumer is a current policyholder of an insurance product issued by or through the license;
Thus, despite the inquirers description of the relationship of the title insurer to its policyholder, under this definition, because the title policyholder is a current policyholder of an insurance product issued by the title insurer, there is a continuing relationship with the licensee and, accordingly, the policyholder is a customer. Consequently, unless one of the exceptions contained in N.Y. Comp. Codes R. & Regs. tit. 11 § 420.3 (i)(2)(ii) were to apply, the title insurer would be subject to the notice requirements pertaining to customers, including the N.Y. Comp. Codes R. & Regs. tit. 11 § 420.24(b) (2001) requirement that it provide an initial privacy notice to its existing customers by July 1, 2001.
Pursuant to N.Y. Comp. Codes R. & Regs. tit. 11 § 420.3(i)(2)(ii)(e) (2001), a consumer does not have a continuing relationship with a licensee if:
The customers policy is lapsed, expired or otherwise inactive or dormant under the licensees business practices, and the licensee has not communicated with the customer about the relationship for a period of 12 consecutive months, other than annual privacy notices, material required by law or regulation, communication at the direction of a state or federal authority, or promotional materials.
If a companys title insurers relationship with its insureds falls within the above exception there is no continuing relationship and these insureds would be consumers, rather than customers. In such a case, the initial notice provisions for consumers contained in N.Y. Comp. Codes R. & Regs. tit. 11 § 420.4(a)(2) and (b) (2001) would apply. N.Y. Comp. Codes R. & Regs. tit. 11 § 420.4(a)(2) (2001) contains the initial privacy notice requirements for consumers. N.Y. Comp. Codes R. & Regs. tit. 11 § 420.4(b) (2001) contains certain exceptions to the initial privacy notice requirements, including an exception for a licensee that does not disclose any nonpublic personal financial information about a consumer, with whom the licensee does not have a customer relationship, to any nonaffiliated third party, other than as authorized by sections 420.14 and 420.15 of the regulation. Moreover, N.Y. Comp. Codes R. & Regs. tit. 11 § 420.24 (2001) would not be applicable.
It remains the Departments position that the second prong of the N.Y. Comp. Codes R. & Regs. tit. 11 § 420.3(i)(2)(ii)(e) example cannot be met for people who became policyholders within the 12 month period preceding July 1, 2001. Consequently, such policyholders are the licensees existing customers and, as such, they must be provided with an initial privacy notice in accordance with N.Y. Comp. Codes R. & Regs. tit. 11 § 420.24 (2001). Individuals who became policyholders prior to the 12 month period preceding July 1, 2001 and to whom both prongs of the N.Y. Comp. Codes R. & Regs. tit. 11 § 420.3(i)(2)(ii)(e) example apply need not be provided with the initial privacy notice.
For further information you may contact Supervising Attorney Joan Siegel at the New York City Office.