The Office of General Counsel issued the following opinion on May 20, 2003, representing the position of the New York State Insurance Department.
Re: Risk Retention and Theft Protection Program
Question Presented:
May a risk retention group provide a theft protection program, in which motor vehicle physical damage coverage is provided to purchasers of motor vehicles in the event that the vehicle is stolen and not recovered?
Conclusion:
No, a risk retention group may not provide a theft protection program, in which motor vehicle physical damage coverage is provided to purchasers of motor vehicles in the event that the vehicle is stolen and not recovered.
Facts:
An insurance company ("Insurer"), which is a risk retention group, submitted forms to the Insurance Department for a theft protection program that it would like to offer in New York. The theft protection program is modeled after another insurers ("Insurer 2") product that had previously been approved by this Department.
Under the program, a group insurance policy would be issued to ABC Inc. Certificates of coverage would be issued thereunder to purchasers of new or used motor vehicles. According to the certificate, ABC Inc. is the administrator of the "Premiere Theft Protection" program (the "Program"). The certificate of coverage states that "[t]his certifies that the Premier Theft Protection Program has been installed on the above described Covered Vehicle utilizing a process designed to deter theft and assist authorities in the recovery of the Stolen Vehicle." For a period of either 36 or 60 months, depending upon which box is checked on the certificate, the Insurer agrees to pay the vehicle owner the lesser of $3,500 or the actual cash value of the vehicle, in the event that the vehicle is stolen and not recovered. In addition, the Insurer will provide reimbursement for a car rental; reimbursement for expenses incurred as the result of having to be away from home as the result of the theft; towing reimbursement; reimbursement for storage of the vehicle; reimbursement of the comprehensive/collision deductible on the vehicle owners motor vehicle insurance policy; and reimbursement of homeowners/rental deductible for valuables stolen from the vehicle as a result of the vehicle being stolen.
The Insurer is domiciled in another state and is not registered as a risk retention group (RRG) in New York, but presumably it intends to register before it offers insurance in New York. Inasmuch as a RRG that is not domiciled in New York is not required under either the federal Liability Risk Retention Act 15 U.S.C. § 3901, et seq. ("LRRA"), or N.Y. Ins. Law Article 59 (McKinney 2000) to file policy forms with the Insurance Department, it is assumed that the Insurer wants to know whether its theft protection program may be offered in New York, assuming that the Insurer was to register.
Analysis:
15 U.S.C. § 3901(a)(4) defines "risk retention group" to mean, in relevant part:
any corporation or other limited liability association
(A) whose primary activity consists of assuming, and spreading all, or any portion, of the liability exposure of its group members;
(B) which is organized for the primary purpose of conducting the activity described under subparagraph (A);
. . . .
(G) whose activities do not include the provision of insurance other than
(i) liability insurance for assuming and spreading all or any portion of the similar or related liability exposure of its group members. . . .
15 U.S.C. § 3901(a)(2) defines "liability" to mean, in relevant part:
(2) liability -
(A) means legal liability for damages (including costs of defense, legal costs and fees, and other claims expenses) because of injuries to other persons, damage to their property, or other damage or loss to such other persons resulting from or arising out of
(i) any business (whether profit or nonprofit), trade product, services (including professional services), premises, or operations, or
(ii) any activity of any State or local government, or any agency or political subdivision thereof; and
(B) does not include personal risk liability and an employers liability with respect to its employees other than legal liability under the Federal Employers Liability Act (45 U.S.C. § 51 et seq.)
The LRRA has been implemented in New York by the enactment of N.Y. Ins. Law Article 59, the provisions of which parallel the provisions of the federal LRRA.
The above quoted language provides that, under the LRRA, a RRG may provide insurance only to its members (or reinsurance to other similar RRGs) and the only kind of insurance that may be so provided is liability insurance. Further, the liability covered by the RRG must result from or arise out of a business or governmental activity, and cannot include liability arising out of non-business pursuits.
The Insurers proposed insurance program does not meet these requirements. First, it is being offered to purchasers of motor vehicles who are not members of the RRG. Second, since the coverage is provided to any such purchaser that has signed up for the Premiere Theft Protection Program, the coverage is being offered to non-business entities. Third, the insurance provided to the purchasers is first-party physical damage coverage and does not purport to insure the liability of any person.
The Insurer stated that it modeled the coverage after an insurance product offered by Insurer 2. Insurer 2 is an authorized insurer, not a risk retention group. The product that the Insurer refers to is issued pursuant to N.Y. Ins. Law § 3446 (McKinney 2000), which authorizes the sale of product or system group insurance policies where the manufacturer, distributor, or installer of a product or system has represented that the product or system is designed to prevent loss or damage to property from a specific cause (other than loss or damage to property resulting from defect in materials or workmanship or wear and tear). The policy may cover only such loss or damage. Subsection (c) of that section limits the kinds of insurance that may be offered pursuant to § 3446 to those kinds of insurance authorized under paragraphs (4) through (12), (19) and (20) of N.Y. Ins. Law § 1113(a) (McKinney 2000). All these kinds of insurance are property insurance; the kinds of liability insurance authorized under § 1113(a), such as paragraphs (13) and (14), are specifically not included in § 3446.
It should be further noted that the policy may not be restructured to insure ABC Inc. for any liability it may incur if it were to undertake to issue an anti-theft "guarantee," in which a benefit would be paid if the vehicle was stolen. As the Insurance Department has stated on any number of occasions, ABC Inc. would thereby be doing an insurance business without a license, in violation of N.Y. Ins. Law § 1102 (McKinney 2000). See, for example, Opinion 02-03-22, dated March 25, 2002, which can be found on the Insurance Departments website at http://www.ins.state.ny.us/ropi2002.htm.
In summary, it is the Insurance Departments opinion that the Insurers proposed Premiere Theft Protection Program may not be offered in New York by a risk retention group.
For further information you may contact Principal Attorney Paul A. Zuckerman at the New York City Office.