The Office of General Counsel issued the following opinion on May 31, 2005, representing the position of the New York State Insurance Department.
Re: Service Contracts
Questions Presented:
1. May an insurer that wishes to write insurance policies backing service contracts issued in New York State use a generic contractual liability insurance policy that it uses in other states that regulate warranties, with specific state endorsements? Is the policy form required to be filed with and be prior approved by the Department before its use?
2. Does a service contract reimbursement insurance policy that is issued to a service contract provider who is not domiciled in New York constitute acceptable proof of its financial responsibility under the New York Service Contract Law?
3. Must retailers and marketers who sell products and extended warranties thereon in New York register as service contract providers?
4. Who is required to be the obligor under a service contract issued in New York State? Is there anyone who cannot be an obligor under a service contract?
Conclusions:
1. No, under the New York Service Contract Law, N.Y. Ins. Law Article 79 (McKinney 2000 and Supp. 2005), a service contract provider who chooses to fulfill its financial responsibility requirement by insuring the performance of its New York service contract obligations must do so by obtaining a policy of service contract reimbursement insurance issued by an insurer authorized to write such policies in New York State or on an excess line basis. Contractual liability insurance does not constitute "Service contract reimbursement insurance," which is defined in N.Y. Ins. Law § 1113(a)(28) (McKinney Supp. 2005), in New York. An insurer is not required to file service contract reimbursement insurance policy forms upon service contracts issued in New York with the Department. Prior approval of the policy form is also not required.
2. The New York Service Contract Law does not require a service contract provider to be domiciled in New York State in order to do a service contact business. A service contract provider, whether domiciled in New York State or not, must register with the Superintendent in order to do a service contract business in this State. A service contract provider, including one not domiciled in New York State, may choose to demonstrate its financial responsibility under Article 79 by obtaining a policy of service contract reimbursement insurance.
3. A person who sells an extended warranty upon a product that the person either manufactured or sold is not required to be registered as a service contract provider with the Superintendent.
4. Under the New York Service Contract Law the service contract provider is, by definition, one who is obligated to provide services under the service contract. There is no limitation in this law as to the classification of person who may be an obligor under a service contract. Even a person whose only relationship to the product covered by the service contract is that they issued the service contract may sell a service contract on the product.
Facts:
ABC Administration Solutions, LLC ("ABCAS") is a third party administrator/service contract administrator doing business out of another state and incorporated in another. The inquirer explains that ABCAS is checking with all states to make sure that the inquirers "insurance underwriting provider" is in compliance with each states requirements governing underwriting, administering, servicing and sales of non-automobile service contracts. The inquirer identified the product classifications as electronics, appliances, home warranties, utility programs (e.g., water, sewer and appliances), ATVs, ski mobiles and personal watercraft.
Analysis:
The New York Service Contract Law ("the Law") was added by Chapter 614 of the Laws of 1997 and most of its provisions are contained in Article 79 of the New York State Insurance Law. (McKinney 2000 and Supp. 2005) Under the Law, as implemented by Regulation 155, N.Y. Comp Codes R. & Regs. tit 11, Part 390 (2001), the business of service contracts is exempted from all other provisions of the Insurance Law. N.Y. Ins. Law § 1101(b)(3-a) (McKinney Supp. 2005) provides, as follows:
Notwithstanding the foregoing [what constitutes doing an insurance business] the marketing, sale, offer for sale, issuance, making, proposing to make or administration of a service contract pursuant to article seventy-nine of this chapter or warranty, service contract or maintenance agreement conditioned upon or otherwise associated with the sale or supply of heating fuel shall not constitute doing an insurance business in this state.
The Law and its implementing regulation, Regulation 155, establishes a framework for the conduct of service contract business by which service contract providers must be registered with, and are subject to the jurisdiction of, the Superintendent of Insurance. The term "Provider" is defined in N.Y. Ins. Law § 7902(h) (McKinney 2000) as follows:
(h) Provider means a person who markets, sells, offers for sale, issues, makes or proposes to make or administers a service contract, and who is contractually obligated to provide service under a service contract.
In order to be considered a service contract provider such person must be the one who is obligated to provide services under the service contract. However, there is no limitation under the Law as to the classification of person who may be an obligor, and therefore a service contract provider, under a service contract. Even a person whose only relationship to the product covered by the service contract is that they issued the service contract may sell a service contract on the product.
There is no requirement in the Law that a service contract provider be domiciled in New York State in order to do a service contact business. All service contract providers, whether or not they are domiciled in New York State, must first be registered with the Superintendent in order to do a service contract business in New York pursuant to N.Y. Ins. Law § 7907(a).
A service contract provider is required to provide proof of its financial responsibility by one of three methods specified in N.Y. Ins. Law § 7903(c) (McKinney 2000). A service contract provider may choose to fulfill its financial responsibility requirement under paragraph (1) by insuring the performance of its New York service contract obligations under a policy of service contract reimbursement insurance issued by an insurer authorized to issue such policies in New York State or on an excess line basis. "Service contract reimbursement insurance" is defined in N.Y. Ins. Law § 1113(a)(28) (McKinney Supp. 2005), as follows:
(28) .means insurance issued to a provider pursuant to article seventy-nine of this chapter whereby the insurer agrees, for the benefit of service contract holders, to discharge the obligations and liabilities of such provider under the terms of the service contracts issue by such provider, including the return of unearned provider fees upon any termination or cancellation of service contracts, in the event of non-performance of any such obligations or liabilities by such provider. Such insurance may also include insurance issued to a provider to indemnify the provider for losses sustained by reason of the performance of such providers obligations under service contracts issued pursuant to article seventy-nine of this chapter.
Contractual liability insurance does not constitute service contract reimbursement insurance in New York, and such a contract may not be written in New York as liability insurance. Even if a contractual liability insurance policy has been accepted as proof of service contract financial responsibility in other states, and it contains specific state endorsements, in order for the policy to be acceptable as proof of financial responsibility in New York it must meet the statutory criteria and the minimum provisions and requirements contained in Section 390.7 of the regulation. In other words the New York endorsement would have to modify the underlying policy to meet the New York requirements in order for it to constitute a policy of service contract reimbursement insurance.
N.Y. Ins. Law § 2302(a)(7) (McKinney 2000) exempts service contract reimbursement insurance from the requirements of Article 23 of the Insurance Law, which governs property/casualty insurance rates, including the rate and form filing requirements contained therein.
The making of an extended warranty on a product, even when sold for an additional fee, does not constitute a service contract when made by the manufacturer or seller of the product covering defects in the product. Therefore, the obligors do not have to be registered as service contract providers in order to issue an extended warranty in this State.
For further information please contact Supervising Attorney Barbara A. Kluger at the New York City Office.