The Office of General Counsel issued the following informal opinion on December 17, 2001, representing the position of the New York State Insurance Department.
Re: Contractual Liability
Question Presented:
Does an agreement by a manufacturer to indemnify another entity that is within the direct distributive chain of the product against a products liability claim constitute an insurance contract? If so, is the manufacturer an insurer within the meaning of the New York Insurance Law that is regulated by the New York State Insurance Department?
Conclusion:
An indemnification agreement as above-described does not constitute an insurance contract. Therefore, the indemnitor (the manufacturer) is not an "insurer" within the meaning of the New York Insurance Law, and neither it, nor its activities with regard to such indemnification, are regulated by the Department.
Facts:
An inquirer presented the following information, upon which it based its inquiry: a manufacturers sales contract asserts that the manufacturer is "self-insured through a program of self-insurance and that it will provide protection to [the distributor/seller] in the event of a product liability claim."
Analysis:
The manufacturer, through its contract, asserts that it will indemnify the distributor/seller for any product liability claims that arise from the manufacturers product. Based on the information provided to the Department, the statement in the contract regarding "self-insurance" merely means that the manufacturer has retained this risk of liability, rather than transfer that risk to, for example, an insurance company.
Under New York law, a manufacturer (and all those involved in the direct distributive chain of its product) are held strictly liable for damages caused by a defective product. See Voss v. Black & Decker Mfg. Co., 59 N.Y.2d 102, 462 N.Y.S.2d 398 (1983); AFA Protective Systems, Inc. v. Atlantic Mutual Ins. Co., 157 A.D.2d 683, 549 N.Y.S.2d 783 (2d Dept 1990); Smith v. Peerless Glass Co., Inc., 259 N.Y. 292, (1932); Velez v. Craine & Clark Lumber Corp., 33 N.Y.2d 117, 350 N.Y.S.2d 617 (1973); Perazone v. Sears Roebuck Co., 128 A.D.2d 15, 515 N.Y.S.2d 908 (3rd Dept 1987).
Thus, a manufacturer that agrees to indemnify another entity that is within the direct distributive chain of the product, such as a distributor or seller, against a products liability claim is merely apportioning the amount of liability that exists as between it and the indemnitee. The indemnitor in this instance is not assuming liability where none exists, and is not, therefore, providing insurance. Hence, the indemnitor (the manufacturer) is not an insurer within the meaning of the New York Insurance Law, and neither it, nor its activities with regard to such indemnification, are regulated by the Department.
For further information you may contact Senior Attorney Sally A. Geisel at the New York City Office.